Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — SCOTLAND

The Secretary of State was asked—

One-stop Clinics

Mr. Douglas Alexander: What progress is being made in the development of one-stop clinic services in Scotland. [56101]

The Parliamentary Under-Secretary of State for Scotland (Mr. Sam Galbraith): We are making good progress towards modernising the national health service. About 80 one-stop clinics have so far been established throughout Scotland. That is an important step towards our aim of better and quicker treatment for everyone.

Mr. Alexander: Can the Minister tell the House what steps are being taken to support one-stop clinics for my constituents in Paisley, South?

Mr. Galbraith: My hon. Friend's local hospital has made considerable progress. There are already one-stop clinics for breast cancer, colorectal cancer, prostatic assessment, early pregnancy and cardiology. Those clinics are well on their way to providing better and quicker treatment for all their patients.

Gaelic

Mrs. Ray Michie: What steps he is taking to encourage more Gaelic-speaking teachers to undertake training for work in Gaelic-medium units. [56102]

The Minister for Education, Scottish Office (Mrs. Helen Liddell): The Government are committed to Gaelic and plan to spend £5 million more on Gaelic education over five years, including £200,000 annually for in-service teacher training.
Teacher education institutions have targets for Gaelic student numbers; suitable Gaelic-speakers taking a primary postgraduate certificate in education receive free tuition, regardless of any previous support that they may have received; and the Scottish Office funds publicity promoting Gaelic-medium teaching.

Mrs. Michie: I thank the Minister for that comprehensive answer. My particular concern relates to

primary school Gaelic units. I remember that Strathclyde region identified Gaelic-speaking teachers in its area and offered them retraining, but nothing much happened. I hope that the Minister will undertake to encourage education authorities to identify Gaelic speakers, retrain them through colleges or distance learning, and offer them development prospects.
I invite the Minister to tear herself away from the central belt and visit the units in Mull, Tiree and Islay. She will see what excellent work they are doing, but they are always on a knife-edge in case they lose a teacher whom they cannot replace.

Mrs. Liddell: I am grateful to the hon. Lady for her generous invitation, which I should love to take up. I know that she has had a particular concern about Salen primary school on Mull, which lost its Gaelic teacher and then lost the supply teacher, who moved away rapidly. I understand that a teacher is now in place, so that difficulty should have been resolved.
It may reassure the hon. Lady to know that Her Majesty's inspectorate of schools has undertaken research which shows that there are a substantial number of Gaelic-speaking teachers who are interested in teaching through the medium of Gaelic. Education authorities can provide support for those teachers to enable them to teach in Gaelic-medium units. The Government have set aside an additional £200,000 annually for in-service training for Gaelic teachers. Earlier this year the General Teaching Council held a seminar on Gaelic-medium education. My officials, together with the GTC, are seeking to address the issues that were raised at that seminar, with a view to making further progress.

Mr. Michael Connarty: I welcome my right hon. Friend to her position on the Scottish Front Bench and congratulate her on her rise in status to membership of the Privy Council. She will recall that I wrote to her recently about other modern languages, as well as Gaelic. Can she tell the House what plans she has in store for Scottish schools to advance the learning of other modern languages, which are so vital in the present European context?

Mrs. Liddell: I thank my hon. Friend for his generous comments. I am aware of the correspondence that he sent me in relation to the teaching of modern languages. He will know that a recent report by Her Majesty's inspectorate of schools revealed rather disturbing news about the teaching of modern languages in Scottish schools. As a result, I have asked officials to strengthen the guidelines for initial teacher training to include stronger encouragement for developing modern language skills. I am also setting up a languages action group to work with the Scottish Consultative Council on the Curriculum to tackle a programme, including a review of the guidelines on modern languages for five to 14-year-olds, and to give advice on attainment targets for modern languages in primary and secondary schools. I will also ask the Scottish qualifications authority to review the standard grade arrangements for modern languages because, quite frankly, we cannot have a modern Scotland if the Scottish people are not proficient in modern European languages.

Businesses (International Financial Crisis)

Mr. Eric Clarke: What steps he has taken to assist Scottish businesses in respect of the recent international financial crisis. [56103]

The Secretary of State for Scotland (Mr. Donald Dewar): Although my hon. Friend is right to be concerned about the turbulence in the world economy, the latest monthly figures show that unemployment in Scotland continues to decline and employment to increase. The Government endeavour to help businesses by promoting a competitive, stable domestic economy. Scottish Enterprise is reviewing its economic development strategy at my request and, with my Department, is providing specific assistance to areas experiencing particular problems.

Mr. Clarke: May I take this opportunity to thank everyone who wrote to me and sent get well cards— particularly you, Madam Speaker?
The Secretary of State knows that many businesses go to the wall because confidentiality is imperative in their day-to-day dealings. Does his Department have a hotline or an equivalent service from which businesses may seek assistance? If businesses could consult such a service more quickly, there would be fewer redundancies and less unemployment.

Mr. Dewar: My hon. Friend's reappearance on the Bench, in fighting form, is very welcome. In Scottish terms, the House is a much quieter place when he is absent. I am delighted to see him back and boisterous.
As to his specific question, many local enterprise companies run one-stop shops with entry points. I agree entirely that, at a time when there are inevitable economic difficulties given worldwide conditions, it is particularly important that those who believe that they have a viable future but who require assistance over a difficult patch establish contact with local enterprise companies, Scottish Enterprise, Highlands and Islands Enterprise or directly with my Department. That would give us the chance to offer what advice and help we can. I am very much in the business of taking a positive approach to firms experiencing difficulties.

Mr. James Wallace: I am sure that the Secretary of State will have heard many business people in Scotland express concern about the strength of the pound and the level of interest rates. Given that interest rates are significantly lower in countries that are about to become members of the single currency than in the United Kingdom, and given that tens of thousands of jobs in Scotland depend on manufacturing industries that export to European Union destinations, will the Government firm up their recent more positive sounds about economic and monetary union and establish a clear timetable for a referendum and British membership of the single currency?

Mr. Dewar: It is always a pleasure to hear Liberal party policy, and it is good that the hon. and learned Gentleman pushes his line with such charm.
As to the wider issues that he raised, he may have to approach my colleagues at the Treasury. However, in 1997, for example, exports from Scotland increased by

12 per cent. I take a bullish view of the Scottish economy's medium and longer-term prospects, but I am anxious not to see a return to stop-go economics and to boom and bust. I certainly do not want to return to the days—it was not so long ago—when we saw interest rates at 15 per cent. and many associated problems. The hon. and learned Gentleman is entitled to point to the Conservative Front Bench in that regard. The Chancellor is determined to end that situation, and I think that he has the full support not only of my right hon. and hon. Friends but of many other sectors of political opinion.

Mr. Martin O'Neill: I am sure that my right hon. Friend is aware that a number of Scottish companies have suffered as a consequence of the international turbulence and, therefore, are not necessarily able to meet the regional selective assistance targets to which they were previously committed. Will my right hon. Friend and his colleagues continue to look sympathetically at those companies' requests that their problems be considered if the employment targets to which they were committed in more optimistic times are not met?

Mr. Dewar: I would approach my hon. Friend's suggestion with a great deal of caution. RSA is very tightly controlled—and rightly so. Regional selective assistance is paid when jobs are delivered, and I want to hold to that principle. I repeat my message: firms that experience particular difficulties should not be slow in coming forward and approaching the Scottish Office and Scottish Enterprise, because they may be assisted in other ways. We naturally look sympathetically at cases in which, despite certain difficulties, the long-term viable job prospects seem to be good and realistic. I hold to the fact—there are examples that underline this point—that RSA needs to be tied to the targets that have been promised.

Mr. John Swinney: In the light of the continuing economic difficulties in the shorter term to which the Secretary has referred, does he recognise the folly of the real-term reductions in the budgets for Scottish Enterprise and Highlands and Islands Enterprise? Does the right hon. Gentleman not consider that, in view of those difficulties, he should reverse the cuts and give himself more room for manoeuvre to invest in areas of Scotland that are suffering economic difficulties, such as the borders and the south-west?

Mr. Dewar: I certainly recognise the folly of taking a simplistic line, as the hon. Gentleman has just done, on this matter. The hon. Gentleman is referring to the adjustments that we have made, particularly to the property portfolio of Scottish Enterprise. We wish to invest not in property but in people, skills and economic growth. Secondly, we have adjusted Scottish Enterprise's training budget because £70 million a year is coming in under the new deal and more is being spent on skills and training in Scotland than previously. I am sure that the hon. Gentleman is aware of those facts. I hope that he will both accept them and rejoice, with me, in the fact that Scotland is leading the way in the new deal: there are 15,500 people already in the system; 2,600 are now in jobs; and 5,700 employers have already signed up.


That shows that that part of the budget of Scottish Enterprise and the new deal, working together, are having considerable success.

Ms Rachel Squire: Does my right hon. Friend agree that there are some success stories among businesses in Scotland? Will he join me in welcoming the additional 1,400 jobs that will be coming to the Fife area through BSkyB? Will he join me also in paying tribute to the management and work force of Solectron Scotland Ltd., which deals with the global manufacturing electronics industry? I visited its plant in Dunfermline yesterday, where it now employs nearly 1,300 people.

Mr. Dewar: I am happy to endorse what my hon. Friend has said. It is important that we remember that, although there have been disappointments recently and some failures, we have been creating more jobs in Scotland than we have been losing. I hope that that situation will continue. Certainly every effort will be made to ensure that it does. In 1997–98, Locate in Scotland concluded 87 inward investment projects coming to Scotland, creating and safeguarding 18,000 jobs. I welcome the expansion in Dunfermline by BSkyB. I am well aware of the reputation and excellence of the work that is carried out by Solectron.

Dr. Liam Fox: Does the Secretary of State expect unemployment in Scotland to fall or to rise between now and the establishment of the Scottish Parliament?

Mr. Dewar: The hon. Gentleman, like me, will have to wait and see. Thanks to the determined line that is taken by the Government—for example, taking £20 billion out of the borrowing requirement and the way in which we have held down inflation—we are certainly very much better placed than many competing countries to ride out the turbulence that has resulted from the collapse of the far east economies and from events in Russia. I am sure that the hon. Gentleman would want to pay tribute to that and join me in hoping that we can continue the excellent record to which I have referred.

Dr. Fox: The right hon. Gentleman's evasiveness is matched only by his willingness to blame other people. Let us go through what the Government are doing. With exporters facing continuing difficulties; with the failure of the new deal to attract sustainable jobs; with tax rises of the equivalent of 5p in the standard rate since the Government came to power; with the Chancellor of the Exchequer, in an hour's time, about to downgrade his own growth forecast; with an increase in borrowing; with a tax raid on pensions; and with a soon-to-be-announced extra 23p per gallon on petrol, which will further damage confidence in the rural economy, does not the Secretary of State accept that the price of the Government's incompetence is bound to be paid for in lost jobs, and that the next get well card that he writes will be to the Scottish economy?

Mr. Dewar: The hon. Gentleman should try to come into the real world. I am prepared to debate with him as long as his arguments are in any sense creditable. As a start, for his education, he should consider the previous

Government's record and the problems that they experienced over a long period. I am confident that Scotland will ride out the troubles and that the fortunes of the Conservative party in Scotland will always be much worse than those of the Scottish economy.

Higher Still

Mr. Nick St. Aubyn: If he will make a statement on progress towards implementing the new Higher Still exams. [56104]

The Minister for Education, Scottish Office (Mrs. Helen Lid dell): The Government are committed to re-establishing Scotland as a world leader in education. As part of the agenda to raise standards in schools and levels of achievement, the Government are committed to the start of the Higher Still programme by August 1999. The Government recognise the professional concerns of teachers and we have responded vigorously to those concerns. Funds of more than £24 million have been committed to support classroom teachers, on top of the £20 million already invested centrally to ensure that the start of Higher Still is a success.
We have also approved an extra two in-service days for Higher Still training and provided an unprecedented amount of national training, support materials, assessment exemplars and information leaflets, and a telephone helpline for teachers.

Mr. St. Aubyn: Given that the new access intermediate 1 and 2 courses will be phased in over three to five years, why has not the Minister taken the trouble to introduce the Higher Still exams over a phased period? Is not the truth that she would rather spend her time playing party politics for the Scottish Labour party?

Mrs. Liddell: Oh dear, Madam Speaker! I am glad that the people of Guildford are taking such an interest in Higher Still, but perhaps I can pass on some accurate information. The introduction of Higher Still is phased. It has been delayed twice. The hon. Member for Guildford (Mr. St. Aubyn) is shaking his head; I doubt whether he even knows what Higher Still is.
The phasing of Higher Still is designed to ensure that, in the upper years of Scottish secondary education, we widen the opportunities for young people of all abilities so that they learn certain key core skills. Those with special educational needs can do highers at access level and those who are very able can do advanced highers that prepare them for university. Higher Still, which began in 1992, is a phased programme, as it should be because it is one of the most radical changes in Scottish education for many years.
I have been conscious of teachers' anxieties, and with my right hon. Friend the Secretary of State, I met the Educational Institute of Scotland. [HON. MEMBERS: "Come on."] Conservative Members are yawning because they do not find the subject interesting. I am today inviting the Educational Institute of Scotland to participate in a liaison group that will consider further phasing where there is explicit proof that exceptional difficulties exist in a specific subject or in named schools. Any request for additional phasing must have the support of the head teacher and the local authority. [HON. MEMBERS: "This is


taking for ever."] Although Conservative Members may not be interested, parents and teachers in Scottish schools are extremely interested.

Mr. Tony Worthington: Does my hon. Friend share my amazement at the comments of the hon. Member for Guildford (Mr. St. Aubyn) about Higher Still? The problems with the higher levels of Scottish education were identified at the beginning of the 18 years of the previous Government. It is only now that a vigorous programme to modernise the curriculum is being introduced. Does my hon. Friend share my concern about how long it takes to introduce major changes in the Scottish curriculum? It has taken many years, and there is a danger that a long time may pass before changes are introduced to deal with a problem that has been identified.

Mrs. Liddell: My hon. Friend makes a valid point. The route to Higher Still began in 1992, which is why it is not acceptable to the Government further to delay its implementation. My hon. Friend is right also to draw attention to the lamentable performance of the previous Government, who for 18 years downgraded Scottish state education. This Government are determined to ensure that Scottish state education returns to its rightful place as a world leader. That is how we shall modernise Scotland and raise standards and achievement in Scottish schools.

Mr. Andrew Welsh: In view of Scottish teachers' low morale and increased work load, will the Minister now repudiate the Daily Record headline which referred to Labour's war on teachers? Surely this negative attitude must be replaced by co-operation with the teaching profession, which understands the problem and offers the only means of delivering for Scottish education. The Minister's liaison group comes rather late in the day; such action should have been taken much earlier.

Mrs. Liddell: I greatly welcome the fact that the hon. Gentleman is taking such an interest in education; perhaps we shall soon hear some education policies from his party. The teaching profession has welcomed Higher Still, and I share the profession's commitment to it. My main priority is to raise the standards and levels of achievement of the children in Scotland's schools. That is the aim of all those who are properly concerned about Scottish education, unlike the hon. Gentleman's party which seems committed to the dumbing down of Scottish education.

Mr. Donald Gorrie: What the Minister says is encouraging, in as far as it goes, since the Government have averted a possible conflict with the teachers' organisations. I hope that the Minister will continue to show some sensitivity towards the problems outlined by teachers, especially modern language teachers, who cannot understand why modern languages are not a core subject for Higher Still. As the Minister knows from other correspondence, many English teachers are very concerned about the content of the syllabus. Will she treat sympathetically those genuine concerns?

Mrs. Liddell: I am happy to tell the hon. Gentleman that I will indeed take these matters on and treat them sympathetically. I know of his interest in them. I am anxious that the guidelines for modern language teaching

should be improved. HMI's report has shown that, in many instances, teachers were unclear about what the guidelines recommended, which suggests that the guidelines themselves were not sufficiently clear. As for the introduction of Higher Still in English, I have taken on board some of the points made by teachers who had professional concerns, especially about assessment. We have therefore altered the arrangements for the assessment of English. I hope that Higher Still will be introduced in August 1999. Indeed, the Government are committed to that, and I look forward to Scottish education returning to its rightful place as a world leader.

Employment (Southern Scotland)

Mr. Alasdair Morgan: What additional steps he proposes to assist employment creation in the south of Scotland. [56105]

Mrs. Caroline Spelman: If he will make a statement about the economic prospects for the borders. [56113]

The Secretary of State for Scotland (Mr. Donald Dewar): I have just returned from a series of meetings in the borders and last week I undertook a similar visit to Dumfries and Galloway. I heard at first hand about the problems that are being encountered. My Department is working with local organisations to address those problems. A number of initiatives are in hand, including additional support for both local enterprise companies. To give another example, I was able yesterday to confirm approval and funding for the A7 traffic relief scheme at Hawick, which should offer important economic development benefits.

Mr. Morgan: Further to that reply, does the Secretary of State agree that transport costs are a vital factor in job creation in the south and south-west? Will he undertake to urge the Chancellor to reverse his current policy of increasing road fuel duty by some 6 per cent. annually above the rate of inflation—a policy that will result in petrol costing £4.50 by the end of this Parliament and which will cost jobs in the south and the south-west? [Interruption.]

Mr. Dewar: I understand the hon. Gentleman's point. I am interested to hear Conservative Members shouting that the hon. Gentleman is absolutely right. The Conservative Government, for very understandable reasons, followed a policy of introducing real increases above the rate of inflation for many years. Their words either show an inability to remember the past, or else drip with hypocrisy.
As for Dumfries and Galloway, I had extremely constructive talks with the council, the local enterprise companies and other interests there. We are trying to help them to build for the future. I recognise the importance of tourism and job-creation measures. I assure the hon. Gentleman—I suspect that he will have heard this from others—that we are properly engaged in finding a way forward.

Mrs. Spelman: Agriculture is in deep crisis in the borders, and currently, I understand from my relatives, about 1,700 jobs are at risk. Will the Government accept


responsibility for the mismanagement of this sector, or continue to blame the rest of the world and the people of the borders?

Mr. Dewar: On the hon. Lady's question about accepting responsibility for mismanagement, the answer is no. I hope that she is following the BSE inquiry with close attention, because she might find it instructive. I certainly accept that there are difficulties in the agricultural sector. Sadly, they affect almost every section of the industry at the moment, which is a particular problem.
As the hon. Lady knows, we spend about £500 million a year in Scotland on agricultural support of one sort or another, and a successful effort was made last year to find additional help for farmers. If she likes to study the advanced arable area payments, the order on split ewe carcases, the increase from 60 per cent. to 80 per cent. on advance payments on the special beef premium and a number of other measures that have been taken over recent weeks and months, she will see that a great deal is being done. We are in constructive dialogue with the National Farmers Union of Scotland.

Mr. John Home Robertson: Will my right hon. Friend reflect on the success of the task force established in Haddington in my constituency, following the loss of 510 jobs at the Mitsubishi factory seven months ago? The task force, which involved the Employment Service, the Benefits Agency, the local enterprise company, the Scottish Office and the local authority, succeeded in getting 450 out of 510 people into alternative employment or training places, and is still working on getting the remaining 60 people placed. Should we not be talking about positive achievements of that kind, rather than listening to Jeremiahs from Meriden or the Scottish National party?

Mr. Dewar: I have not visited Meriden to count the number of Jeremiahs, but that may be an interesting expedition for the future. My hon. Friend is right to point to that success, following the great disappointment of the Mitsubishi closure in Haddington. It is perhaps a reminder that, when there is a Government with a bit of energy and initiative, a great deal can be done and that, despite what we often hear from Opposition Members, the economy is not in free fall. We have not plunged into deep recession and we are much better placed than many of our competitors to ride out these problems.
I should comment on Viasystems, because of the bitter blow to the borders economy. I had a useful and constructive meeting with the shop stewards last night in Selkirk. They are also trying to look to the future in a way that does them great credit.

Scottish Parliament

Mr. James Gray: If he will make a statement on publicity for the elections to the Scottish Parliament in May 1999. [56106]

The Minister for Home Affairs and Devolution, Scottish Office (Mr. Henry McLeish): Next May's elections to the Scottish Parliament will be the first to be held in Scotland under the additional member system.

We believe that the right to vote must also mean a right to understand, and we therefore intend to make sure that voters are properly informed about the change.

Mr. Gray: Some commentators have scurrilously suggested that the £2 million campaign which the Government propose is designed to shore up their flagging support in the forthcoming elections. Leaving that on one side, does the Minister not agree that that expenditure falls into roughly the same category as expenditure in Government information campaigns before referendums? If so, does he intend to be as dismissive of the Neill Committee in that area as he was last week? [Interruption.]

Mr. McLeish: I am reminded from my Back Benches that we also read the polls. They would be instructive reading for the Conservatives, should they keep reading them, especially between now and the May elections in Scotland next year. There is something ironic and paradoxical about such an attitude coming from a party that will be sent a life line through the additional member system because it has not a hope of winning in a first-past-the-post contest in Scotland in the near future.
We are creating a Scottish Parliament, which is a new institution, and a new method of voting, which is a simple, commonsense way forward. Surely it must be right that people understand that system, and we are seeking to hold a public information exercise that matches the aspirations of the Parliament. It will help the people of Scotland in the run-up to the elections, and I certainly hope that all parties represented in this House will endorse the principle that we need to educate the people of Scotland in relation to the specific additional member system, which involves not only one, but two votes. It is vital that that is made clear.

Mrs. Maria Fyfe: My hon. Friend will be familiar with the problems of elderly people who have to try to get to a polling station that is up a steep hill or about a mile from their home, even though they may have a school next door to them. Will he consider what influence he can bring to bear on the electoral registration people to ensure that that sort of nonsense is brought to an end, especially for the first elections to a Scottish Parliament?

Mr. McLeish: I can reassure my hon. Friend that we are considering those issues. It is vital that there be no practical or physical impediments to people voting. We are concerned about older people, and we are also targeting younger people and those with special needs, so that they can use the ballot boxes in the polling stations to the best advantage. That is high on our agenda, and I reassure my hon. Friend that we are closely considering any possible improvements that we can make.

Mr. Oliver Letwin: In the light of the Minister's answer to my hon. Friend the Member for North Wiltshire (Mr. Gray), and his response and that of his colleagues to Lord Neill's report, does he understand the widespread scepticism about the Government spending millions of taxpayers' pounds on a mass information campaign? Will he give the House a


categorical assurance that, before it is published, the Government will put the entire campaign before Lord Neill for him to review its neutrality?

Mr. McLeish: We do not recognise such widespread scepticism, because there is none. That is Conservative Members' interpretation. They obviously do not visit Scotland or speak to Scots, because they are out of touch. The basic issue is that the public information exercise is about a new institution and a new method of voting. I urge the Conservatives and members of every other party to endorse the principles of a public information exercise. At the appropriate time, there can be discussions with Opposition parties. This exercise is in the interests of Scotland: it is not about the narrow political interests being pursued by the Conservative party.

Mr. Ian Davidson (Gasgow, Pollok): Does the Minister recognise that there is substantial under-registration in many areas of Scotland? That is the legacy of the poll tax, for which the Conservatives are remembered. Will he enable as many people as possible to register by ensuring that local authorities are given a proactive role in chasing up people and giving them the opportunity to vote in the first election for a Parliament in Scotland?

Mr. McLeish: I can tell my hon. Friend that that has already happened. We were keen to target older people, younger people and those with special difficulties. We have worked with local authorities on a registration campaign in Scotland. I am convinced that that will increase the number of people registered. That is highly appropriate, given the historic setting of the elections for the Scottish Parliament next year.

Beef

Mr. Owen Paterson: If he will make a statement on the beef industry in Scotland. [56107]

The Parliamentary Under-Secretary of State for Scotland (Mr. Calum Macdonald): The Government appreciate the fact that beef producers are particularly exposed to the present difficulties in the farming industry. That is why we are providing record support to the farming industry, approximately half of which goes to the beef farmer. Scottish beef producers also benefit from the Government's financial support for specified risk material controls and for the cattle tracing system set-up.

Mr. Paterson: Does the Minister agree that Scottish beef is now the safest in the world, and that there is no proven link between bovine spongiform encephalopathy and new version Creutzfeldt-Jakob disease? Does he further agree that there are no human health or animal health grounds to maintain the beef ban? The ban is flagrantly political, and a grotesque abuse of our trading arrangements with our European partners. Instead of coming up with such complacent answers, the Government should take the case of the Scottish farmers to the European Court.

Mr. Macdonald: Perhaps the hon. Gentleman has forgotten, but the beef ban was one of the legacies of the Conservative Government.

Mr. David Stewart: My hon. Friend will be aware that I recently carried out a survey of 400 restaurants and hotels in my constituency. It showed that 90 per cent. stock and are a source of Scottish beef, and 99 per cent. are very satisfied with the quality of Scottish beef. Does my hon. Friend agree that the imminent lifting of the European beef ban will provide a vital new niche in the market for Scottish farmers and their high-quality product?

Mr. Macdonald: Indeed, I am encouraged by the report of my hon. Friend's constituency survey. Although cattle prices have been lower everywhere in the past year, Scottish quality beef products are fetching a premium in the market. When the beef ban is lifted, the prospects for Scottish beef exports will be good.

Mr. Charles Kennedy: Does the Minister share the optimism of the United Kingdom's Minister of Agriculture, Fisheries and Food that the beef ban should be lifted by the turn of the year? The Minister was in the Chamber last week when the agriculture Minister said that he hoped, sooner rather than later, to announce what I think he described as a significant package of additional help for the hard-pressed agriculture sector. Will that be reflected in the Scottish Office vote, and in what the Scottish Office is able to give the Scottish agricultural community?

Mr. Macdonald: The hon. Gentleman will have to wait for future announcements. We are working flat out to lift the ban on beef exports; there has been considerable progress since the Government took office, and we are continuing to work on it. It should also be said that the Government are providing record support for the agriculture industry: £500 million a year is going into farming, and during the year we have increased that by £50 million

Dr. Liam Fox: Given the drop in farm incomes and the apparently increasing gap between farm-gate and supermarket prices, will the Minister consider three fairly non-controversial steps? First, will he ensure that rigorous carcase checks are carried out for residues so that, now that our beef is the safest in the world, no consumer is put at risk by imported beef? Secondly, will he ensure, through labelling, that consumers see clearly how they can support the domestic industry? Finally, will the Government actively encourage supermarkets and caterers to procure home-produced food? Those three simple measures would go a long way to improve the environment for farmers.

Mr. Macdonald: As the hon. Gentleman will know, action has already been taken in regard to beef labelling and supermarkets. The gap between prices paid to farmers and prices paid by consumers has caused concern, but, as the hon. Gentleman will be aware, the Office of Fair Trading is preparing a report on the major supermarkets, which should be published before the end of the year.

Local Government Housing

Mr. John M. Taylor: If he will make a statement about the level of council house debt in Scotland. [56108]

The Parliamentary Under-Secretary of State for Scotland (Mr. Calum Macdonald): As at 1 April 1998, council house debt in Scotland was estimated to be £3.9 billion.

Mr. Taylor: Who is financing all that debt? Can it be that the taxpayers of the rest of the United Kingdom, including my constituents, are underwriting housing debt in Scotland?

Mr. Macdonald: The hon. Gentleman is wrong on both counts. In fact, council tenants service debt through their rents. If the hon. Gentleman wishes to attempt comparisons between England and Scotland, I can tell him that the average council house debt is pretty similar in both countries. The total council house debt in England is £20 billion.

Miss Anne Begg: I congratulate my hon. Friend on the forward-looking policy that the Government are about to introduce in order to bring about much-needed investment in Scottish council housing through the new housing partnership. Will he confirm that that falls very far short of privatisation? It is nothing to do with privatisation; it is about giving council housing back to tenants and local communities, so that they can invest the money that they need to make their houses better.

Mr. Macdonald: I can give my hon. Friend an absolute assurance to that effect. We are increasing investment in housing by 40 per cent. over the next three years from the level of investment that we inherited. The object of new housing partnerships is indeed to modernise Scottish housing stock, to lever in new investment on top of the public-sector investment and to provide real community control over housing, along with real powers for tenants, in their own neighbourhoods, over their own houses.

Mr. Alex Salmond: Can the Minister answer a simple question about the Government's approach to housing? If it is possible to offer, as a carrot or incentive, the writing off of debt for private partnership companies, why is it not possible to offer the writing off of debt to councils throughout Scotland?

Mr. Macdonald: There are two reasons for the transfer to community ownership. First, it will allow the new community landlords to lever new investment into housing, on top of the public-sector investment that is already being provided. Secondly, it will provide real powers for local communities and the tenants who live in them.

Film Industry

Mr. Tom Clarke: When he next expects to meet Scottish Screen to discuss the potential for film production and exhibition in Scotland. [56109]

The Parliamentary Under-Secretary of State for Scotland (Mr. Sam Galbraith): My right hon. Friend the Secretary of State for Scotland has no present plans for a formal meeting with Scottish Screen. I met the chairman of Scottish Screen, James Lee, on 2 June and again on 2 September.

Mr. Clarke: Does my hon. Friend recall the film review that I co-chaired, which published in March "A Bigger Picture", focusing on the absolute need for more investment in film production, especially in Scotland? Does he have a view on the three projects that are being proposed for major film studios in Scotland? Will he bring together the various agencies as well as Scottish Screen to ensure that, in the interests of Scottish culture and, indeed, of our economy, films about Scottish subjects are produced in Scotland?

Mr. Galbraith: I pay tribute to my right hon. Friend's expertise in this subject and, in particular, to his report, "A Bigger Picture", which has given considerable guidance and great vision to the film industry throughout the United Kingdom. I welcome moves towards its location in Scotland. It is for Scottish Screen to consider the options for funding and location in the light of what is in the best interests of the whole of Scotland when developing the film industry in our country.

Oral Answers to Questions — LORD CHANCELLOR'S DEPARTMENT

The Minister of State was asked—

Debt (Late Payment)

Mr. Christopher Chope: For what reasons legal aid debts are being exempted from legislation on the late payment of debts. [56131]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): The money that is paid by the Legal Aid Board to lawyers is currently outside the scope of the Late Payment of Commercial Debts (Interest) Act 1998 because the amount of legal aid payments is decided by Parliament through regulations. Claims for payment have to be taxed by a court or assessed by the board before they can be paid. Therefore, there is no direct contractual relationship on which the late payment legislation could operate.

Mr. Chope: That answer just will not wash. The Law Society has made representations to the Government saying that they are guilty of sleight of hand in relation to this. If Law Society payments were to be exempted, they could have been exempted in the main legislation. Masses of small firms of solicitors throughout the country were waiting for the Lord Chancellor's Department to pay debts outstanding for more than six months. They were looking forward to the legislation. At the last minute, they have been excluded from the rights under it. If a debt is incurred for the Lord Chancellor's wallpaper, that will carry interest, but a debt for a core legal service that is provided to the Lord Chancellor's Department does not.

Mr. Hoon: The hon. Gentleman has this wrong. Provision of legal aid does not currently come within the


legislation simply because there is no direct contractual relationship. There will be a direct contractual relationship if the Government carry through, with Parliament's approval, plans for reforming legal aid to establish contracts. In those circumstances, there will be a contract against which late-payment legislation can bite.

Public Records

Mr. David Kidney: What assistance is given by his Department to persons who cannot afford to pay the prescribed fees for the issue of public records. [56132]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): There are no prescribed fees for the issue of public records; the records are made available free of charge at the Public Record Office. The only fees that are payable regarding public records are those prescribed by the Public Record Office (Fees) Regulations 1998 for the provision of copies of records and for other services that are offered by the Public Record Office.

Mr. Kidney: I thank my hon. Friend for that answer. I refer him to birth certificates. Clearly, most people need to buy a full certificate at some time during their life and some people have difficulty in affording even the modest fee for such certificates. Therefore, I urge my hon. Friend to consider some formal scheme for exemption from such fees. Looking to the nearer future, will he think about using the internet more to make copies of documents available, where they will be directly accessible to more and more people?

Mr. Hoon: I am grateful to my hon. Friend for his suggestion. The Public Record Office is microfilming an increasing proportion of its most popular records. That will enable visitors to print out copies at a reduced cost and non-visitors will benefit from lower charges for prints from film. Increasingly records are available electronically in schools, libraries and in people's homes via the internet. I hope that that development will continue.

Legal Aid

Mr. Owen Paterson: If he will list those insurance companies selling insurance products to underpin conditional fee agreements. [56133]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): Insurance products to underpin conditional fee agreements have been available since July 1995 when conditional fee agreements first became lawful. The number and range of insurance products are increasing with new products becoming available all the time. I am aware of at least eight providers of insurance to underpin conditional fees. I am aware of at least two other products that are likely to be brought on to the market over the coming months.
I doubt that a comprehensive list exists or, indeed, could be put together, given the vibrant and expanding nature of the market.

Mr. Paterson: The insurance industry will currently underwrite only personal injury cases for conditional fee agreements. What does the Minister intend to do about the public who take any other case to court?

Mr. Hoon: A wide variety of insurance products are available. There are insurance products available to cover any sort of risk, but the premiums to cover significant risk are available at a significant cost. Obviously, as the market develops, we will see a lowering of the cost of those premiums.

Mr. Edward Garnier: I congratulate the Minister on his promotion in the last Government reshuffle and I offer him my commiserations on his inability to extract himself from the grip of the Lord Chancellor.
According to the Consumers Association report, "Legal Expenses Insurance: Realising its Potential", which was published this year, only 17 per cent. of adults in Great Britain have legal expenses cover. That compares with the 1990 figure of 27 per cent. It also appears that mostly the more affluent and middle-aged households take out this insurance. Given that the Government are taking away legal aid from the least affluent and leaving them to rely on their own limited resources, can the Minister say whether his proposals will increase or decrease access to justice for the poor?

Mr. Hoon: We have made it clear that legal aid will not be withdrawn from anyone in our society unless and until there are effective alternatives and effective access to justice. The extension and development of conditional fees will allow that to take place in due course, but we have made it clear that we want to see an extension of legal expenses insurance. We believe that that is appropriate for the great majority of people. Equally, we have made it clear that no one will lose out unless and until there is effective access to justice for them.

Immigration Appeals

Fiona Mactaggart: How much spare capacity exists in magistrates courts in the Greater London area and nearby; and what assessment he has made of the extent to which this could be used to help to tackle the backlog of immigration and asylum appeals. [56134]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): It is important to emphasise that magistrates courts are locally managed services. Each of the 22 magistrates courts committees in the Greater London area is primarily responsible for the use of the courtroom accommodation in their individual area. However, we are currently examining ways of using spare capacity in the magistrates courts to assist in bail hearings in detention cases. I should emphasise that the key restraint in reducing further the backlog of immigration and asylum appeals is not accommodation, but the shortage of adjudicators, which we are tackling vigorously.

Fiona Mactaggart: As my hon. Friend is aware, I have asked this question because the suggestion was in the


recent review of immigration appeals paper. I am concerned to find out what progress has been made in dealing with the large backlog which means that these cases are delayed.

Mr. Hoon: The Government have put a great deal of effort into reducing the backlog of appeals. I can assist my hon. Friend by setting out the relevant statistics. In July 1997, the figure for outstanding appeals by adjudicators was 34,907 and by September 1998 that had been reduced to 22,298. We anticipate that by the end of March 1999, that figure will have been reduced again to some 16,000 cases.

Mr. Nicholas Soames: Does the hon. Gentleman agree that, such is the backlog of immigration matters, for all sorts of different and understandable reasons, the law is being brought into disrepute? Will he examine the method used in Holland for dealing with illegal immigrants where adjudicators are on the spot the whole time so that cases can be dealt with immediately and do not block up the magistrates courts?

Mr. Hoon: I do not accept that the law has been brought into disrepute. However, the appeals process is currently under review and I would welcome the hon. Gentleman's suggestions for other ways in which these matters may be resolved more effectively and, certainly, more speedily.

Mr. Keith Vaz: I welcome the Minister's actions so far in dealing with the backlog. However, does he accept that one way of dealing with the backlog—which clearly causes enormous distress to applicants—is to appoint more adjudicators? What action is he taking to ensure that more adjudicators are appointed to deal with the ever-increasing number of cases?

Mr. Hoon: The Government have appointed new adjudicators since our election in May 1997. There are currently 34 full-time adjudicators and 212 part-time adjudicators. A recent recruitment board for full-time appointments is expected to result in the appointment of at least eight new adjudicators. A board for part-time appointments is due to commence shortly, to which 77 candidates have been called to interview. We shall continue to increase the number of adjudicators with a view to reducing the backlog.

Legal Aid

Mr. David Amess: When he last discussed his legal aid reforms with the Lord Chief Justice and the other heads of divisions of the High Court. [56135]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): The Lord Chancellor and I meet the Lord Chief Justice and other senior judges regularly. We discuss many areas of mutual interest, including legal aid.

Mr. Amess: In the light of the Lord Chief Justice Bingham's remarks that any legal aid reform should be proceeded with cautiously and slowly, is it wise of the Government to rush ahead with their reforms, which many experts believe are ill thought out and will make the situation worse?

Mr. Hoon: It is not for me to comment on what the Lord Chief Justice thinks of the Government's proposals. However, I note that Lord Bingham, at his recent press conference, expressed support for our plans to refocus legal aid and to extend availability of conditional fees. I certainly welcome that endorsement.

Mr. John Burnett: I am happy to congratulate the Minister on his recent promotion. Last night, the Lord Chancellor made a speech on the proposed community legal service. What legal services will the community legal service be providing, first, for those who now qualify for legal aid, and, secondly, for middle-income Britain?

Mr. Hoon: Yesterday, the Lord Chancellor outlined our plans to establish a community legal service, which will improve access to justice by refocusing the traditional legal aid scheme and provide more help, and more effective help, to the most vulnerable people in our society, particularly in relation to social welfare law and employment, housing, debt and benefit advice.

Dr. Norman A. Godman: I hope that those legal aid developments and reforms will be of positive assistance to the witnesses who hope to give evidence to the Bloody Sunday inquiry, which is chaired by Lord Saville. Many of the witnesses, both in England and in Northern Ireland, are on low incomes. They need and deserve such assistance.

Mr. Hoon: I am grateful for my hon. Friend's suggestion, and shall ensure that whichever member of the Government is responsible for the matter is made aware of his observations

Magistrates Courts

Mr. Bob Russell: What criteria are used to determine whether a magistrates court should close. [56136]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): There are no statutory criteria. Magistrates courts are locally managed by magistrates courts committees under the provisions of the Justices of the Peace Act 1997. It is for individual MCCs to identify their own criteria when deciding their own accommodation needs, after consultation with the local paying authority. My Department has no role other than to determine any appeals arising from a local dispute.

Mr. Russell: Does the Minister agree that magistrates courts committees are quangos, and that they are strangled by the amount of money that is provided by the Lord Chancellor's Department? Does he agree also that the vast majority of cases dealt with by magistrates courts committees could be dealt with locally, and that there is


a hidden plan to close magistrates courts across the country—as hon. Members on both sides of the House know?

Mr. Hoon: I assure the hon. Gentleman that there is no hidden plan. I was also slightly surprised at the tone of his question, which effectively challenged the importance of local decision making. I should remind him that
far too much power has been concentrated in Westminster and Whitehall",
and that
democratic government should be close to ordinary people".

Mr. Russell: Rubbish.

Mr. Hoon: The hon. Gentleman says that, but those words should sound vaguely familiar to him, as they are from the Liberal Democrats' manifesto, on which he was elected in May 1997.

Mr. Ian Bruce: Surely one of the problems with magistrates courts is that sufficient numbers of cases are not being referred to them. Is there nothing that the Government can do to ensure that matters such as juvenile crime are dealt with more in magistrates courts, and that we shorten the time that it continues to take between charging and an appearance before a magistrate?

Mr. Hoon: As the hon. Gentleman will know, one of the Government's basic promises to the electorate was to speed up youth justice. We are doing that, the work is under way and we are seeing the results up and down the country.

Civil Justice Review

Mr. Andrew Dismore: If he will make a statement on progress in the implementation of the Civil Justice Review. [56137]

The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): Our plans for introducing the first phase of civil justice reforms on 26 April 1999 are on target. The new rules will be finalised by the Civil Procedure Rules Committee this month. After approval by the Lord Chancellor they will be laid before Parliament in December. We plan to publish them with supporting practice directions and key forms in January 1999.
The latest edition of the Lord Chancellor's Department's bulletin, "Implementing Civil Justice Reform" contains further details of the work in hand and will be available in the Library today.

Mr. Dismore: Does my hon. Friend agree with my view—from experience of 20 years in practice—that the reforms will necessitate quite substantial retraining and re-education for practitioners and some re-tooling in terms of new technology? What assistance will his Department give practitioners to meet the deadline for the introduction of the new rules?

Mr. Hoon: The latest draft rules have been available on the Department's website and in hard copy form since July, so practitioners have had a great deal of time to prepare themselves. There is no reason why the reforms should not go ahead as planned in April. Indeed, any delay would cause uncertainty to the practitioners about whom my hon. Friend is concerned.

Pre-Budget Statement

The Chancellor of the Exchequer (Mr. Gordon Brown): In this year's pre-Budget report, we seek to steer a course of stability amid a world economic downturn. We set in place measures to improve productivity and provide support for enterprise, we introduce new measures to make work pay for all our people and we show how we will invest in health, education and our infrastructure to provide the modern services on which people rely—in each case taking long-term decisions that will equip our country for the future.
The background to the report is the global downturn. It started in Asia and has reverberated throughout every continent. Not only has it shifted the balance of risks in the world economy from fears about inflation to fears about growth, but it has forced every country, continent and international financial institution to cut its estimates for growth.
World trade growth is set to fall by two thirds. Forecasts for world growth have now been virtually halved. One quarter of the world is in recession and in this uncertain world, my objective for Britain is that we steer a stable course and, by building our long-term strengths, we are more than equal to any and every challenge that the global economy presents. Because in the past 18 months inflation has been brought down to its target of 2½ per cent. and because Britain has set in place a long-term monetary framework with the independence of the Bank of England, Britain is better placed than in the past to face the global difficulties. Because, too, Britain has tackled its structural deficit in public finances, we are more able to steer that stable course, but as all forecasts around the world have made clear, there is acute uncertainty about the eventual outcome of global financial instability. We are conscious of the balance of risks: on one hand, the risk of a sharper slow-down in the world economy as a result of instability and the effect on confidence and, on the other hand, the risk that inflationary pressures might persist. So the pre-Budget report is set with this firmly in mind: no denial of short-term difficulties and no diversion of policies for long-term strength.
Our challenge in the year ahead is to strengthen the three essential foundations for long-term strength and success. First, Britain now has for the first time a credible long-term framework for both monetary and fiscal policy. It has an inbuilt capacity to respond credibly to short-term pressures and we shall not be deflected from it. Secondly, with business, in order to build on that stability, we are putting in place a strategy to tackle a fundamental long-term economic weakness—the 40 per cent. productivity gap with our most successful competitors. These measures will include investment in education and innovation, and new encouragement for enterprise and for competition.
Thirdly, with our welfare-to-work programme and by ensuring that work pays, we are extending opportunity to all in our country, creating a Britain where no one is excluded, no potential is neglected and everyone has a contribution to make. It is a Britain that is both enterprising and fair.
First, I shall deal with the foundation for long-term economic stability. Official figures show that by spring 1997, with consumer spending growing at an

unsustainable pace, inflation was heading way above the country's 2½ per cent. target to twice the level of our competitors—4 per cent. and above—and that at that time, Britain was set to repeat the boom-bust cycle that led to 15 per cent. interest rates for one whole year in the early 1990s.
Because immediate action was taken, making the Bank of England independent and tackling the inflationary pressures, inflation is today at our target of 2½ per cent. I can announce that for future years our forecast is that inflation will stay on target. As a result, Britain's long-term interest rates have come down from more than 7 per cent. in May 1997 to 5 per cent. The differential between Germany and Britain has narrowed by nearly 1 per cent. Long-term interest rates are now at their lowest for 35 years and the lowest since Britain's boom-bust cycle first became entrenched.
Because Britain has brought inflation under control, it has been possible, as the world has turned downwards, for interest rates to respond more quickly and in a more forward-looking way than in past economic cycles. In the previous economic cycle, interest rates remained in double figures for more than four years. In contrast, the Bank of England has already been able to reduce interest rates to respond to a changed international environment.
Long-term monetary stability is a precondition of our economic success. I reaffirm my support for the Bank of England's independence, for its remit and its membership. I do not believe that any political party, putting the long-term interests of Britain first, will, on reflection, bring party politics and short-termism back into interest rate decisions.
It is also because Britain has a new long-term fiscal framework with clear disciplines set out in the code for fiscal stability that we are laying before Parliament this afternoon that, as world growth slows, fiscal policy is able to make its contribution to stability and future growth in Britain. The official figures published today confirm that in our first year, we cut the budget deficit from the £28 billion that we inherited to £8 billion. That tightening has continued throughout our second year—a total fiscal tightening in two years of 3¾per cent. of national income. So, fiscal policy has played its full part with interest rate policy in tackling inflationary pressures.
Because we have concentrated on priorities and cut waste, spending this year will be £2 billion below the ceilings that we inherited. As a result, our current budget this year is expected to be £5½ billion in surplus. What in the Budget was prudently projected to be net borrowing of £1 billion this year is now expected to be a debt repayment of £1½ billion.
The golden rule is that over the cycle we balance the current budget. In other words, on current spending, we eliminate the structural deficit that we inherited. Again, I can report to the House that because of the tough action that we have taken since we came into government, that is exactly what we are now achieving.
Now that we have broken with short-termism and created for the long term a stable monetary and fiscal framework with an inbuilt capacity to be more responsive to the economic cycle, fiscal and monetary policy can together contribute to stability and growth in the coming years.
My forecast for 1999 of 1 to 1½ per cent. growth in our economy will see Britain steering a stable course, even when one quarter of the world is in recession. As the


economy returns to its sustainable growth path, we expect growth to be between 2¼ and 2¾per cent. in 2000, and between 2¾ and 3¼ per cent in 2001.
It is because we are cautious about the balance of risk in the economy that we have based our public finance forecasts on assumptions deliberately more prudent than those made under the previous Government. First, our public finances are planned on an estimate of a 2¼ per cent. trend rate of growth—¼ per cent. lower than the assumption that we inherited. Secondly, our forecasts have revised downwards the ratio of VAT receipts to projected consumer spending, reducing estimated revenue by nearly £4 billion over the next five years.
Thirdly, revenues from tackling fraud have been set at a more cautious level than in the previous Parliament. Fourthly, we have discontinued the highly imprudent practice of assuming revenues from privatisations that have not been agreed. In each case, our assumptions have been audited by the independent National Audit Office, and because of the experience of the early 1990s we have adopted a more prudent approach to forecasting income tax and corporation tax revenues, including a cautious estimate of revenues from self-assessment.
Even after making those prudent assumptions, and taking into account the world downturn, we meet our first rule—that of balancing our current budget over the cycle. We expect the current surplus to be £1 billion next year, £3 billion in 2000–01, £8 billion the year after that, and £10 billion and £11 billion for the two years to follow. For the same years, net borrowing is expected to be £4 billion, then successively £5 billion, £2 billion, £2 billion and £1 billion.
Those figures are better for every year of this Parliament than those for any year of the previous Parliament. They represent an estimated current surplus for the coming five years of £33 billion—a margin that shows that we are equipped to cope with further uncertainties. That £33 billion surplus contrasts with what happened under the previous Government—a deficit of £149 billion over the economic cycle, as national debt doubled.
Our second rule, the sustainable investment rule, requires that as we borrow for investment, debt is set at a prudent and sustainable level. In the last year of the previous Government, the debt ratio was 45 per cent. of national income. In the next three years, to meet the needs of a modern infrastructure, public investment will rightly double. Yet as a result of our overall prudence, debt as a proportion of national income is set to fall below 40 per cent.—to 39 per cent. next year, then to 38 per cent., and then to 36½ per cent.
Hon. Members who take a special interest in the Maastricht criteria will want to know that in each of the next five years Britain will be comfortably within the Maastricht guidelines.
Long-term economic stability, from which we will not be diverted, is the foundation for future success, but we shall achieve our long-term goals for growth and employment only through an even more radical modernisation of our economic policy in favour of opportunity, enterprise and work.
We now need to push ahead with modernisation in each of the following areas—improving productivity, expanding opportunity and investing in our future. So in

every one of those areas our economic policy will be based on getting the best out of all our people and their potential—in other words, maximising economic opportunity for all. What makes for a good economy also makes for a good society—one that is fair and cohesive.
I turn to the first conclusions from the review that we have conducted with British business into removing the barriers to productivity. As our seminars with business have revealed, the only way for Britain to be at the forefront of the new knowledge-based economies of the future is by modern policies for education, employee participation, small business development and science and innovation.
Our first recommendations concern the quality of education. With our £19 billion investment in educational reform, we have set out demanding targets for literacy, numeracy, teaching standards and higher qualifications. My right hon. Friend the Secretary of State for Education and Employment has announced today a £250 million investment in a new traineeship programme for teenagers. In this way, we have now made it possible for every young person after the age of 16 to stay on in part-time or full-time education, to get the qualifications they need and to have the opportunity of a job.
To meet that productivity challenge for our economy, we must do more to encourage the ambitions of all our children, not least by bringing the world of education and the world of work into closer contact. Over the next year, we plan to enlist business leaders throughout the country to take the world of work and business into our classrooms. To encourage businesses to offer expertise and management help to our schools and colleges, I can say that the Budget will allow businesses to claim tax relief when they second staff to schools and colleges.
Britain can do more to remove the barriers to opportunity and ambition—the ambition to work your way up and use your creative talents, the ambition to start and build a successful business and the ambition to see the firm in which you work succeed, and you succeed with it. Today, only a fraction of British employees—and an even smaller minority of those outside senior management—own shares in the companies that they work in. Yet the evidence is that employee commitment is a vital strength for companies competing, and then succeeding, in the global economy.
I want, through targeted tax reform, to reward long-term commitment by employees. I want to remove, once and for all, the old "them and us" culture in British industry. I want to encourage the new enterprise culture of teamwork in which everyone contributes and everyone benefits from success.
In the next Budget, we will make it easier for all employees—not just a few—to become stakeholders in their company. I want to double the number of firms in which all employees have the opportunity to own shares. Many employees already hold shares through their pension funds, so I will propose to our pension funds and other institutions that they should provide better and more direct public information to their members and investors.
In future, more of our wealth and jobs will come from small and growing businesses. In just 18 months, we have announced cuts in the rate of corporation tax on large companies twice—to 30p in the pound, the lowest level of corporation tax ever. For small companies, we have cut the rate twice, too—to 20p in the pound. In the Budget


we will consider a further tax reduction for small businesses. In particular, we will consider converting the temporary investment allowance we introduced last year into a permanent tax cut.
I have in mind a bigger reform to cut the burdens of tax and red tape. Small businesses getting started and growing lack not only the resources to pay tax, but the back-up to administer national insurance, income tax and VAT payments and their payroll systems. From April 1999, the Inland Revenue and the Contributions Agency will be merged. We propose to roll out on a nationwide basis a new, comprehensive service for all businesses, helping them to replace time-consuming book-keeping by offering a one-stop advice service, administered by local offices and a national helpline. So, from now on, every Government Department will have an obligation to encourage enterprise and entrepreneurs.
I can confirm to businesses that we are also re-examining planning regulations and building control to identify barriers to productivity and job creation, and how the planning system in Britain can be speeded up to help us to emulate the success of high-tech clusters and corridors, such as America's Silicon valley.
Access to bank finance is critical to the success of every small business. Therefore, I have asked the banks to work with Mr. Don Cruickshank, formerly of Oftel, to assess what steps can be taken to serve more effectively the needs of businesses in the economy.
To open up and enhance competition, we will ensure, with a 20 per cent. increase in its funding, that the Office of Fair Trading has the necessary resources to break down barriers that prevent new firms from entering markets and keep prices unacceptably high for consumers. Further announcements on how the new arrangements will work will come from my right hon. Friend the Secretary of State for Trade and Industry, who will soon publish his competitiveness White Paper. Our policy is pro-small business, pro-share ownership, pro-tax simplification and pro-competition.
Our policy is also pro-skills and pro-science. To turn scientific inventions in Britain into jobs for Britain, we need to do more to honour the spirit of invention, facilitate the exploitation of invention and encourage the commercialisation of invention. More than ever, innovation is the key to higher productivity. We must ensure that inventions created in Britain are developed and manufactured here too.
The first step is a higher quantity and quality of research and development. So, the Government will consult small business on supplementing the current tax relief on research and development with a more effective tax credit for small business, based on the volume of research and development investment.
Three months ago, we announced a partnership with the Wellcome Trust that will invest more than £1 billion to re-equip university science in Britain. It is the largest ever public investment in Britain's science base. Having received an overwhelming response from universities to that and to our new university challenge fund, which is a public-private partnership for commercialising scientific inventions, we are now inviting further private sector involvement.
I now want to complete the path that takes inventions from the science lab through high-tech venture capital and then to the national and global marketplace. So I am

announcing that to develop business expertise in science and to transfer technology from the science lab to the marketplace, we will endow up to eight new institutes of enterprise in British universities. That is a further signal of our determination that the genius of British invention will once again become an engine for growth and job creation.
The strong venture capital industry, supporting high-tech, high-risk investments, is also critical to the future of Britain. Today, we have only 6 per cent. of the early stage, high-tech venture capital of the United States, so we will consult on and consider new incentives, including how to encourage our more successful companies to invest in start-ups and how we can provide new sources of venture capital and management expertise for entrepreneurs.
The productivity challenge is one that must be met by the public and not merely the private sector. Next month, for the first time, the Government will publish public service agreements that set clear targets for improved performance for all Departments. To help them meet those and to monitor performance, we are today establishing an advisory panel from business and management.
Absenteeism costs the public sector up to £6 billion a year. Specific targets are being set for each Department to reduce absence rates by 20 per cent. by 2001 and 30 per cent. by 2003.
We are working with business, not merely to promote higher productivity, but to secure policies for a sustainable environment. Today, I am publishing the report by Lord Marshall, formerly president of the Confederation of British Industry, into the role of economic instruments and the business use of energy. I thank him for his work, which moves the debate forward substantially. After public consultation, the Government will fully consider the recommendations as part of their wider strategy on climate change. I am also publishing today a consultation document containing proposals for a £50 reduction in vehicle excise duty for the smallest and most environmentally efficient cars.
Just as the Government are modernising our industrial economy, so too we are modernising employment policies. The House will be pleased to know that by next April, 300,000 people will have benefited from the new deal, which gives a new sense of hope to men and women previously left out and excluded. Already 29,000 companies have signed up to the new deal, and we are now ready to extend it.
From 30 November, 60,000 opportunities will be created for the long-term unemployed in 28 areas of our country. In Northern Ireland, in support of the peace process, we will guarantee new opportunities to all men and women who have been unemployed for 18 months or more. We will also extend nationwide the new deal skills shortage programme and offer up-front support for training to help to fill the vacancies that come on-stream every month. To tackle skill shortages, I can confirm that by March next year, there will be 120 centres for information technology and high-tech training in every part of the country.
Side by side with the new deal, there will be new guarantees that work will pay more than benefits. From April, as a result of abolishing the entry fee to national insurance, all employees will receive a tax cut of £66 a year. Business will be pleased to know that I can


announce that from April, employers will not pay national insurance on earnings below £83 a week, the 1999 level for the personal tax allowance. When it is economically right to do so, and so that work pays more, we will introduce the 10p starting rate of income tax.
From 1 April next year, 1.9 million employees, including 1.3 million women, will benefit from the minimum wage. I can confirm today that the minimum income guarantee for a low-paid family in work, which as a result of the working families tax credit was announced at £180, will be raised to £190 a week from October next year, as a result of the minimum wage and changes that we are making in tax and benefit. Work will pay a guaranteed minimum of £190 a week for a family, with no income tax to pay on incomes below £220 a week. That will guarantee a minimum income of at least £5.50 an hour for a lone parent in work with one child, and £6.37 for an adult with two children.
To enable parents and carers to balance work and family responsibilities, we want to provide extra help for child care. We have provided the resources for up to 1 million new child care places over the next four years. Consistent with our national child care strategy, we will extend our new child care tax credit to cover all children up to the age of 14 and in the case of disabled children, who have greater needs, up to the age of 16.
We will match the working families tax credit with a new disabled person's tax credit that will ensure that work pays for a disabled man or woman who takes a job. A disabled person with one child moving from benefit to full-time employment will be guaranteed a minimum income of £220 a week, with no income tax payable on income below £274. Disabled men and women taking up work will be as much as £78 a week better off.
Under this Government, disabled men and women who want to work will be guaranteed fair treatment at work, and work will pay. Matching the minimum income guarantee for disabled persons in work there will be a new disability income guarantee of £128 a week for severely disabled people out of work.
We are guaranteeing pensioner couples a new minimum income of £117 a week. That will be followed in the Budget with a guarantee that pensioners will have no income tax to pay unless their income rises above a new specified level. As a result of other measures that we have taken—by following our cut in VAT last year with tougher regulation and new winter fuel payments—I can say that pensioners are saving £108 on their fuel bills and the poorest pensioners are saving £140.
Our task for the country for the coming year—steering a course of stability—is to meet the productivity challenge, to extend fairness and our welfare-to-work programme and to make the modern investments we need in our future. I am pleased to announce that, following the modernisation of the private finance initiative, there will be new investment in our infrastructure—in more than 1,000 schools, 25 hospitals and in dozens of public transport projects—over the coming three years amounting to an additional £11 billion. Over the three years from next April, public investment will double— and will do so at the right time. That is the right decision and the right course of action for our country.
I have one further announcement. Because of our prudence in the management of public finances, Government spending is well within its limits. Our prudence is for a purpose. Therefore, to ensure in every part of the United Kingdom the health care that people—and especially the elderly—need this winter, I am today making an additional and immediate winter cash allocation, to be spent in the next five months, of £250 million for our national health service. I can confirm that, because this Government believe in the best health and the best education not just for a few but for all our people, we will invest an additional £40 billion in the modernisation of education and health over the next three years. Those public services, in the months and the years ahead, will be safe in this Government's hands.
The Government are steering a stable course, prudently investing in our future, proudly building strong public services and consistently keeping our promises to the British people. I commend this statement to the House.

Mr. Francis Maude: We have just heard from a complacent and arrogant Chancellor—a Chancellor who is locked into denial. We have heard fantasy forecasting and Peter Pan economics. How can anyone take seriously the Chancellor's prediction of growth next year when the Treasury's own collection of independent forecasters anticipate growth well below—0.6 per cent. below—his forecast? How can we take the Chancellor seriously when his Department's figures are at odds with his own? His are fairy-tale figures because the Chancellor will not take responsibility.
There was no recognition—not even a glimmer—that the Chancellor's own blunders are to blame. He offers nothing serious to prevent higher unemployment and more business failures—not a single measure that will save a single job. He had a chance today to give hope to people whose livelihoods are on the line, but he blew it because he is too arrogant to admit that he had got it wrong.
For the Chancellor and the Prime Minister—who are smugly and arrogantly sitting there exchanging complacent grins—any talk of downturn is "idiotic hysteria". The Item Club, using the Treasury's own model, predicts that 500,000 manufacturing jobs will be lost. Is that "idiotic hysteria"? The National Institute of Economic and Social Research, whose director the Chancellor has put in charge of sorting out his statistics, warns of a one in three chance of recession. Is that "idiotic hysteria"? The Chancellor's adviser, Gavyn Davies, says that the economy is
teetering on the brink of recession.
Is that "idiotic hysteria"?
If it is all global, as the Chancellor claims, why does The Economist poll of forecasts show that Britain's growth next year will be lower than that of all industrial nations except Japan, which is locked in the middle of a deep slump? Even the European Commission, to which the Chancellor is usually eager to defer, predicts that Britain will slump to the bottom of the European growth table. So let the Chancellor tell us: why will Britain's growth next year be less than half that of the next weakest economy? It will be less than half. Why?
Why have Britain's forecasts been cut by so much more than any others? Why, when it comes to the downturn— [Interruption.] The Chancellor of the Exchequer sits on the Front Bench grinning and smiling. The constituents of


his right hon. and hon. Friends, whose jobs and livelihoods are on the line, will be disgusted by his complacency and arrogance. Let the right hon. Gentleman tell us why, when it comes to the downturn, Britain is in first and in worst. There is a simple answer and it is sitting on the Government Front Bench. Everything that the right hon. Gentleman is doing is making things worse.
The Chancellor of the Exchequer goes on about the current budget and public finances. Why does not he tell us about the real budget, the cash budget, and how much he is actually borrowing? The right hon. Gentleman says that the black hole in public finances does not matter. But what does he say to the National Institute of Economic and Social Research, whose director he relies on so much, which predicts borrowing of not twice but five times that which the right hon. Gentleman predicts?
The right hon. Gentleman says that he can jack up borrowing and no one will get hurt. Does not he understand that higher borrowing means higher interest rates? Does not he understand that for every £10 billion of extra borrowing, interest rates will be a ¼ per cent. higher? How is that helping small business and innovation?
The right hon. Gentleman says that it is all right to borrow more in the downturn. Does not he understand that the harder he presses on the fiscal accelerator, the harder the Bank of England will press on the monetary brakes? Does not he even understand the effect of his own policies?

Mr. Mike Gapes: It says here.

Mr. Maude: The hon. Gentleman will have to go back to his constituency next weekend and look in the face those whose jobs are on the line because of the Chancellor's arrogant blunder. Let him make jokes with them then and listen to what they have to say to him.
In the Chancellor's own wonderland of economics, he says that it is all right to borrow as long as it is for investment. But the right hon. Gentleman is not borrowing for investment. He is not borrowing for health or education. We welcome Labour trying to match our record, but the right hon. Gentleman is borrowing not to pay for health and education but for social security. The Government's own figures show that social security spending, having fallen in recent years, is set to rise. The Government will borrow all right, but they will be borrowing to pay for social security, for the bills of Labour's social and economic failure.
The right hon. Gentleman has talked of productivity—that is right, he is blaming it all on Britain's workers and managers, and the banks as well now. But his proposals, most of which are now being announced for the third or fourth time, are just moving the deckchairs around on the Titanic. The right hon. Gentleman's taxes and regulations have put a £40 billion hole below the waterline of British businesses—that is £1,500 for every person employed.
With power comes responsibility. So the Chancellor must now answer these specific questions: will he give an unequivocal assurance not to introduce the new taxes on people's pensions foreshadowed in yesterday's Daily Mail? Tell us, yes or no? We are waiting to hear, yes or no? If the right hon. Gentleman is so bothered about productivity, will he stop raising the cost of employing

people by £1,500 a year? Yes or no? Will he now tell us by how much unemployment will rise next year as a direct result of his policies?
This was the Chancellor's first big test. It was his chance to start to put right what he has got wrong. He has failed that test. They told us that things could only get better, but they are getting worse, much worse. The price of Labour's blunders will be lost jobs and closed businesses. There will be no more boom and bust; just the bust. There will be no more stop-go; just the stop. Truly, this downturn was made in Downing street.

Mr. Brown: The Financial Times on Monday said that Conservative economic policy was
on an escalator into absurdity",
and Conservative Members have reached the top of the escalator this afternoon. The Leader of the Opposition said that this would be the first big attack on the Government since the election, but unfortunately he put it into the hands of the shadow Chancellor.
The right hon. Member for Horsham (Mr. Maude) did not even welcome our £250 million for the national health service and he wants to cut into the £40 billion that we are spending on health and education. The policies that he advocates are exactly those that brought the country into stop-go recession when he was a Treasury Minister in the early 1990s.
The right hon. Gentleman complains about borrowing, but does not acknowledge that next year's borrowing requirement is £4 billion, when the Conservative Government's borrowing requirement went up to £50 billion. He complains about interest rates that have come down from 7½ to 7¼ per cent. Under the Conservatives, interest rates were at 15 per cent. for a year and over 10 per cent. for four years, including all the time that he was a Treasury Minister. Conservative Members complain about the pound. The pound was at DM2.95 during the whole of the right hon. Gentleman's time at the Treasury. This Government have brought down debt from the 45 per cent. that we inherited to less than 40 per cent. and now to 38 per cent.
A serious Opposition party would tell us where it stood on the basic issues of economic policy. First, would the Conservatives keep the Bank of England independent? We say yes to that question; what is their answer? They do not know and they are totally divided. A sensible Opposition would agree with the Confederation of British Industry's view that spending should rise next year as part of the automatic stabilisers. We say yes to that; the right hon. Member for Horsham wants to cut public spending, but his health and education spokesmen want it to rise. A sensible Opposition would say that welfare to work was in the interests of every constituency. We say yes to welfare to work; Conservatives are against it and the means by which it was created. A sensible Opposition would support the working families tax credit at £190 a week instead of trying to abolish it.
The previous Government were in office for 18 years. They were found out and thrown out. In 18 months, Conservative Members have proved to the country that they are not fit even for opposition.

Sir Peter Tapsell: Does the Chancellor recall that in the House on 27 November last year, I warned him that by 1999 we would be facing not


an inflationary boom, but a recessionary deflation and that he dismissed that proposition with scorn? Is it not now clear that he and his appointees in the Bank of England have, for the past year, been fighting on the wrong front so that our manufacturers and farmers have been faced with unnecessarily high interest rates and a dangerously damaging high pound? Does he accept any personal responsibility for that grave economic misjudgment?

Mr. Brown: The hon. Gentleman would not have made the Bank of England independent—[HON. MEMBERS: "Answer the question."] I am answering the question. [HON. MEMBERS: "Answer the question."] The Conservatives are getting very excited this afternoon, but after the failure of the shadow Chancellor.
The policies that we have put in place are exactly right to deal with the problems of the British economy. The hon. Gentleman would oppose the Bank of England's being independent. He would have opposed our taking action to deal with the inflationary problem in the economy. He gave us no support when we cut the fiscal deficit by £20 billion. They were the right decisions for Britain. They were right because they put us in better stead to deal with any problem that the global economy presents. Had we pursued the policies that the hon. Gentleman was following, we would not be able to respond as we are now to the global downturn.

Mr. Malcolm Bruce: Liberal Democrats favour recycling, and there was a great deal of recycled material in the Chancellor's statement. We shall of course give our own response to the detailed proposals during the consultation process, which we welcome because we think it is a better way of doing Budgets. Of course, we welcome the £250 million for the national health service, which we hope will mean that we are able to get through this winter without waiting lists rising again.
Nevertheless, does the Chancellor recall telling the House in his first Budget statement, in July last year, that the goal was to rebalance the economy so as to control inflation
without damage to industrial and exporting prospects"?—[Official Report, 2 July 1997; Vol. 297, c.305.]
Since then, is not it his lack of policy that has led directly to an over-valued pound, which is higher than in the 1990 recession, and to real interest rates that are higher than during the 1980 recession? Has not there been a gap between diagnosis and cure? Is not it now clear that it is the Chancellor's own policy gap, rather than industry's own productivity gap, which explains the economic downturn that we are now experiencing and the risk of manufacturing recession next year that he is forecasting? When will the Chancellor stop blaming other people? When will he end the blame game and not duck his own responsibilities?
The Chancellor also told us in his previous Budget seven months ago that the United Kingdom's direct trade with the troubled Asian economies is not particularly large, which is not exactly what he said today. Does the Chancellor agree with the CBI, which said yesterday that it was not productivity but
the strength of sterling which has undermined the ability to compete at home and abroad"?

The Chancellor's new forecast is that manufacturing industry may just Miss recession next year and that any overall slow-down will be mild and short. Is he aware that, as the shadow Chancellor said, many independent forecasters outside the House regard that as complacent and unrealistic? Does he agree with the House of Commons Library that manufacturing job losses— [Laughter.] It is interesting that Labour Members below the Gangway should laugh when manufacturing job losses are running at the rate of 300 a day, and, according to the House of Commons Library, will be running at 600 a day next year. Does the Chancellor realise that today's new tax loopholes, dressed up as well-meaning tax tinkering, will have only a marginal effect on that outlook?
Despite his optimistic forecasts, will the Chancellor take this opportunity to accept that the balance of the policy to date has been wrong? Will he promise to change that policy and make it an overriding priority to create the conditions necessary to enable the Bank of England to bring down interest rates, even if that means delaying his 10p tax rate? Would not it be a tragedy if complacency today were to lead to thousands of job losses in industry next year?

Mr. Brown: On the hon. Gentleman's first point, I am grateful that he, unlike the Conservatives, has welcomed what we have done in respect of national health service expenditure, but I must say that we have done far more than the Liberal Democrats ever put forward as their policy at the general election. We have made available £2¼ billion extra this year and £21 billion in the three following years.
As for the hon. Gentleman's points about the general economy, he must be one of the first to admit that when US $3 trillion has been wiped off stock exchanges around the world—10 per cent. of world GDP—it is bound to affect people's investments and companies' decisions about jobs.
The hon. Gentleman will also agree that, when world trade growth falls from 11 per cent. this year to 4 per cent., and is scheduled to be the same next year, there will be problems which every industrial country has to deal with. If he went to America, to the rest of Europe or to Japan, he would see other countries facing up to exactly the same problems. The issue is whether Britain is properly equipped to tackle the problems—indeed, any and every challenge from the global economy.
The hon. Gentleman should go back to our first Budget, which he has quoted. I said that we were creating a long-term framework for monetary policy and fiscal policy in this country. That is what we have done. As a result of the decisions that we have made, through the Bank of England becoming independent and tackling inflation, we are meeting our inflation target. Everyone expects us to meet that target in the time to come.
As a result of cutting the fiscal deficit from £28 billion to £8 billion in the first year, and taking further action this year, we are eliminating that current structural debit— something that the Conservative party never did all the time it was in government. We are creating the conditions—the long-term framework—for monetary and fiscal stability. It is on that that we will be tested, which is right.
On employment, the hon. Gentleman should acknowledge that, over the past 18 months, nearly 400,000 extra jobs have been created in our economy;


that welfare to work has got into jobs thousands of young people who would not otherwise be in work—without any help from the Conservative party, which opposed the windfall tax; and that the Government are doing more, not only to create job opportunities and training, but to help to make work pay. I should have thought that the Liberal party would start to support that as well.
On the hon. Gentleman's taxation proposals, they seem to be very different from the proposal for a £30 billion tax cut that he made to the Liberal party conference.

Madam Speaker: Order. I should be obliged now for brisk questions and brisk answers.

Mr. Barry Jones: I thank my right hon. Friend for his remarkably good statement, especially with reference to those who are poor, have disabilities or are without hope.
I urge my right hon. Friend to make sure that the new deal project is a total success, so that those without hope and those without training can be sure of his support so as to ensure that all the programme's targets are met. Will he remind Conservative Members that, in the early 1980s, Mrs. Margaret Thatcher, Sir Keith Joseph and Sir Geoffrey Howe destroyed more than 2 million jobs in two short years? They also created Europe's largest redundancy ever, in my constituency—8,000 steel jobs between a Christmas and an Easter. My right hon. Friend's statement is much welcomed in the country.

Mr. Brown: My hon. Friend is absolutely right. He knows at first hand what is happening in Wales and in industry throughout the country. He is absolutely right about what happened: manufacturing output fell by 7 per cent. in one year, manufacturing investment in that year fell by 15 per cent. and a million manufacturing jobs were lost. It is precisely because we do not want to return to those conditions that we will not make the mistakes that are proposed by the Conservative party on economic policy.
On the new deal, I have heard Conservative Members sniggering and sniping at something in which they also were invited to play a part.

Mr. Maude: It is a failure.

Mr. Brown: The shadow Chancellor, after a few months of the new deal, which started last April, is now ready to say that it is a failure. That is what the Conservative party wants to happen: it never supported the new deal and refused to back the windfall tax on the utilities, and it is now suggesting that the new deal is failing young people around the country when thousands of them have been joining the new deal every month. I hope that, on reflection, the Opposition spokesman will withdraw those comments.

Mr. John MacGregor: The House will have noted that the Chancellor's calculations depend very much on substantial increases in growth in the last two years of the cycle, which are some way away. How can anyone believe those figures when the Chancellor's projections last year, and the ones that he is making now, are so different for next year, and when our growth

performance in the European Union means that Britain is moving from its position as one of the higher growth countries to the lowest next year?
Will the right hon. Gentleman answer this question, which he has failed to answer so far? Given the importance of pension funds, and increasing take-up of them, will he confirm that he has no further plans to raid pension funds or to reduce the tax incentives for those contributing to them?

Mr. Brown: First, there is no such proposal, nor is there any proposal for a windfall tax on the banks, as the Conservatives suggest. The Conservative Government introduced a windfall tax on the banks, and it is unfortunate that they did not support our tax on the utilities.
Secondly, on the general question about the economy, it is because we have got inflation under control and have taken action to eliminate the structural deficit that monetary and fiscal policy can now work together. The right hon. Member for South Norfolk (Mr. MacGregor) will remember the position faced by the Conservative Government in the early 1990s. Even at the worst stage of the economic cycle, interest rates had to be above 10 per cent. for years because of their failure to control the inflationary tendencies in the economy. As a result of their failure to control public spending, at the worst point of the spending cycle the deficit was £50 billion. I could give Conservative Members more figures to show what happened.
The Conservative Government failed to take action to eliminate the deficit. Because we have taken early action to tackle inflation—which the Conservative Government never took—and because we have been eliminating the structural deficit, monetary and fiscal policy can work together—I think the right hon. Gentleman understands that point. That is the basis on which we have made our forecasts for the economy. The right hon. Gentleman will find that sensible economic commentators agree with us.

Mrs. Anne Campbell: I warmly welcome my right hon. Friend's commitment to enterprise and innovation, and his recognition that high-tech companies require special financing measures. Will he undertake to study carefully the collapse of Ionica last week to see whether special lessons can be learned from that innovative, high-tech company, whose collapse had nothing to do with interest rates—[Interruption.]—or with the exchange rate?

Mr. Brown: My hon. Friend has done a tremendous job working with the science industries in her constituency and throughout the country. It ill befits Conservative Members, who know nothing about what is happening in individual constituencies, to sneer at my hon. Friend's comments. She is absolutely right. The high-tech industry faces problems of financing. There have been particular difficulties in attracting and developing science-based industries in this country.
My right hon. Friend the Trade and Industry Secretary is examining these matters. I acknowledge the work that my hon. Friend has done in pushing this process along. We shall deal with these problems, and we shall look


practically at the barriers to job creation and to opportunity in this country. We shall not pursue the dogmatic policies of the Conservative party.

Mr. Eric Forth: The Chancellor has just said that he will look practically at problems. What in practical and real terms do the Chancellor and his colleagues intend to do effectively to reduce the costs of employment over the next crucial two or three years against a background of almost certainly rising unemployment? The Chancellor knows that, together with his colleagues in government, he has already increased the costs of employment, thus contributing to the real problems of the manufacturing and service sectors.

Mr. Brown: The right hon. Gentleman implies that the situation is all bad. He should acknowledge that there has been a 19 per cent. fall in unemployment in his constituency since the general election. There has also been a fall in the constituencies of many other hon. Members, who should acknowledge that employment has been rising.
As for future policies for employment, the right hon. Gentleman should also acknowledge that we have cut corporation tax to 30p, cut small business corporation tax from 23p to 20p, introduced a new 10p rate of capital gains tax, are cutting national insurance employers' contributions for low-paid employees, and have cut national insurance for employees. Those measures will help employers take on additional workers. The right hon. Gentleman will find that many employers say that they wish a Labour Government had been in office years ago.

Mr. Geraint Davies: Does my right hon. Friend know why Opposition Members make no mention of help for the disabled in jobs, help for minimum income families, and help for small businesses? Why do they make no mention of the venture capital industry, one-stop VAT and national insurance, linking enterprise and universities, the new deal, and extra cash for health and education? Is it because the black hole is between their ears and they cannot hear?

Mr. Brown: I am grateful to my hon. Friend for reminding us of the range of policies that we have introduced and which the former Government failed to introduce. Yesterday, when the House considered the international financial system, the Conservatives had absolutely nothing to say. On monetary policy, they cannot tell us what they would do about the Bank of England. As for fiscal policy, against the advice of the Confederation of British Industry and almost every sensible commentator, they want to cut health and education expenditure over the next year. The sooner the Conservative party wakes up to economic realities, the sooner it will have a chance of being listened to by the British people.

Sir Peter Emery: Will the Chancellor of the Exchequer understand that people listen with some doubt to his talk of a solid, long-term strategy for the economy, given that that strategy has altered considerably since the original announcement in the Budget 16 months

ago? As we move into recession, there are few who would have considered that he could squander a golden inheritance quite so quickly.
Will the Chancellor answer one question? We know about the increase in education and health expenditure to which he has referred, but we should also consider a number of other announcements that were included in his statement. Will he give us some figures showing what increase in expenditure they will involve? The statement included no costing of that expenditure.

Mr. Brown: The right hon. Gentleman talked of the so-called golden legacy. I have to tell him that the "golden legacy" was a £28 billion public deficit—3.5 per cent. of national income—which the last Government had failed to tackle, and which we had to tackle on coming to power.
The right hon. Gentleman also talked of the long-term strategy. Our long-term strategy is this: to have eliminated the current structural deficit, to have reached our target on inflation, and to enable monetary and fiscal policy to work together for stability and growth in the economy. It is because we have made those tough decisions on public finances, and cut the deficit—something that the Opposition never supported and have never done—that we are now in a position to spend £40 billion— [Interruption.] The Conservatives left a deficit of £28 billion, claiming that that was a golden scenario. They are now saying that to borrow even £1 is an absolute disaster. What is the view of the Opposition?
As for the health service—[Interruption.]

Madam Speaker: Order. Do stop shouting. I shall have to use my powers to remove Members from the Chamber if the noise continues.

Mr. Brown: As for health and education, the right hon. Member for East Devon (Sir P. Emery) was right to ask whether we had budgeted for the money that we are going to spend. The answer is yes: the prudent assumptions are the ones that I have listed. Moreover, because we have underspent as a result of choosing priorities and cutting waste, we shall be able to spend an extra £250 million before the end of the financial year.

Ms Diane Abbott: The whole House welcomes the extra £250 million that is to be spent on the health service, but may I ask a question about monetary policy? My right hon. Friend will know that today Sainsbury marked down its profits forecast, citing the exchange rate and the approaching turndown as part of the problem. We all support my right hon. Friend's intention to bear down on inflation, and most of us understand that Eddie George is doing his best within his narrow frame of reference; but does my right hon. Friend accept that, in the very long run, there may well be a case for looking at the framework in which the Monetary Policy Committee operates, and putting on that committee people who are known to have some understanding of and feeling for industry in the north, the midlands and elsewhere?

Mr. Brown: The Monetary Policy Committee is not to be made up of representatives of this pressure group or that. It is a group of people chosen for their expertise in certain areas. What I have been intent on doing—in the


knowledge that I have of the Bank of England, and of what it has been intent on doing—is building up in every region, and in Scotland, Wales and Northern Ireland, an expertise in all areas of the economy, so that that expertise can be fed into decisions on monetary policy. That is the right way forward. It is the way in which independent banks have worked in other countries—and I venture to suggest that no political party in the House would end the independence of the Bank. I believe that, on reflection, the Conservative party will change its mind, and stop opposing it.

Mr. Ian Taylor: Of course some matters of detail that the Chancellor has announced today, such as the encouragement of science, innovation, technology transfer and employee share ownership, are sensible; but on the wider economy, I wonder whether the Chancellor is sanguine about the fall in interest rates that will be necessary if we are to converge with the rate that is set by the European Central Bank. In that context, how will he set his active fiscal policy, to use his words, over the next year or two—or does he think that, as a result of the meeting in Austria last weekend, the change in the economic and stability pact will mean that more borrowing on the continent will force the European Central Bank to put rates up to converge with ours?

Mr. Brown: I know that the hon. Gentleman takes a special interest in matters European, even if that sets him against his Front-Bench team, but on this point, I disagree with him. The worst thing to do would be to rush headlong into monetary union by cutting interest rates just for the sake of dealing with the present situation. The Liberal Democrat party is proposing interest rates at 3 per cent., or something similar.
We have to base the decision on monetary union on the economic tests that have been set down and with proper preparations, leaving the final decision to the British people, but the reason why I believe that economies will, over time, converge is that we are taking action to remove the boom-bust cycle in this country and we will, in time, have a smoother economic cycle than ever existed under the 18 years of the Conservative Government.

Mrs. Louise Ellman: I congratulate the Chancellor on his statement, which reaffirms confidence in his handling of the economy. Will he make a statement, first, on the curious reaction of Opposition Members who, when they hear that we have not been set off course, display a mixture of mirth and consternation; and secondly, on the role that he envisages for regional development agencies in taking forward his important agenda of support for business, including technology transfer and commercial development of the knowledge in our universities, so that we can ensure that all the regions benefit? I remind him that, as part of their negative approach to anything that brings jobs and employment, the Opposition opposed the setting up of such agencies.

Mr. Brown: When the record of this Parliament is written, the Opposition's opposition to the regional development agency proposals, the minimum wage, the working families tax credit, the independence of the Bank of England and to spending sensibly on health and education will be a blot on their record for all time.
I met the chairmen of the new regional development agencies and, with the Deputy Prime Minister, talked to them about their work. I believe that, like Scottish Enterprise, the Welsh Development Agency and the Northern Ireland Development Board, an immense contribution can be made at a regional, Scottish, Welsh and Northern Irish level to the development of the economy.
On my hon. Friend's comments about the Opposition, in all their difficulties—when they had the poll tax, all the problems over the health service, sleaze and everything else—it used to be said of the Conservatives by some of the press that they were at least competent in the management of the economy. That can no longer be said of the statements that are being made.

Mr. Nicholas Winterton: Will the Chancellor accept that manufacturing industry is the main source of sustainable non-inflationary economic growth? Will he therefore take seriously the request made of him by the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) relating to the criteria on which the Monetary Policy Committee takes its decisions— because without manufacturing industry, this country is lost? Is it right that, with inflation at 2.5 per cent., business should be paying around 10 per cent. or more in interest to the banks for money that they borrow to invest in employment?

Mr. Brown: The hon. Gentleman has spoken on manufacturing industry throughout the time of his Government and ours. The review that we are setting up with Mr. Don Cruickshank will look at how the banks are servicing the needs of industry, and I hope that the hon. Gentleman will want to feed in his comments to that.
On interest rates and the Bank of England, as someone who has followed that matter for many years the hon. Gentleman should understand that the causes of low growth and high inflation in the British economy have been the same. They have included the lack of capacity in the economy; therefore, every time there has been growth it has been unsustainable because of the development of inflationary pressures. It is by tackling that problem head on—the independence of the Bank of England helps that—and by creating a credible framework for action that we can begin to address the long-standing problem of stop-go.
As regards individual instances in innovation, investment, training and skills shortages, we are doing what we can, working with manufacturing industry, to deal with some of the problems it faces. I think that the hon. Gentleman will know that the pound is now 10 per cent. down from its peak and is now lower than it was when we took office.

Dr. Lynne Jones: I, too, congratulate my right hon. Friend on his statement, particularly the emphasis on research and innovation. Bearing in mind that even his predecessor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), acknowledges that Britain's debt to GDP ratio is one of the lowest in the world, will he consider further investment in public sector infrastructure, particularly housing and transport? That would benefit business


confidence and help to ensure that the gloomy predictions of a rise in unemployment of 500,000 over the next three years do not come true.

Mr. Brown: Employment has risen by 400,000 and many of those who have been making predictions every month for the past year that unemployment would rise were found to be wrong in February, March, April, May, June and July. On future public investment, I think that my hon. Friend will acknowledge that not only have we doubled public investment over the next three years, but we have enhanced the private-public partnerships to invest £13 billion more in the economy, thanks to the work of the Paymaster General in moving that project forward.
On capital receipts and housing—my hon. Friend mentioned housing in particular—at the time of the comprehensive spending review, we announced a further release of capital receipts to enable house building and house repair to move ahead. When my hon. Friend looks at the figures in the pre-Budget report, she will see that public investment next year rises considerably, which means that investment as a whole in the economy continues to rise. My hon. Friend will want to acknowledge that the Government have done a great deal to move public investment forward. We are never complacent, but we will continue to take the necessary action.

Mr. John Butterfill: When the right hon. Gentleman first became Chancellor, the OECD in Paris forecast that British growth of GDP would be the highest in the European Union and was likely to continue to be so for the foreseeable future. Will he accept any responsibility for the fact that it is now forecast to be the lowest, and that we may have recession? If he is so interested in research, why did he slash the funding for the research councils this year to the point where, in university after university, there is no money to fund postgraduate research?

Mr. Brown: When I became Chancellor and walked into the Treasury one of the first things I was told was that the inflation target could not be met, that inflation would rise to 4 per cent. and above and that inflation—

Mr. Maude: Not true.

Mr. Brown: The right hon. Gentleman does not seem to understand basic economics. When one sets interest rate policy, it is set with a view to the next 12, 18 and 24 months. If action is not taken early enough, interest rates will have to rise later to deal with the problem of inflation. The truth is that when we came into the Treasury, we were told that inflation would rise and that it would be twice that of our competitors.
We also know—the Bank of England had been saying it for the previous six months—that the previous Chancellor had failed to raise interest rates when it was necessary to do so to deal with inflation. It was exactly that problem of short-termism in the making of interest rate decisions that we dealt with by making the Bank of England independent. I would have thought that, as a sensible Back-Bench Member of Parliament, the hon. Gentleman would have supported our action.
On science, the hon. Gentleman should acknowledge that the provision of £1 billion to the Wellcome Trust and investment in our universities and science laboratories has been widely welcomed throughout the country. Now that we have in place measures for the commercialisation of inventions through the university challenge fund and the new institutes of enterprise that I have announced today, science has been given a boost by the Government that it never had under the previous Administration.

Mr. Barry Gardiner: Does my right hon. Friend recall the winter of crisis in 1996–97 under the previous Government, when in hospitals in north-west London people were not simply in the waiting room or stacked on trolleys, they were stacked back on to ambulances? Does my right hon. Friend understand the joy and relief that will greet his statement today at the further £250 million to avert a winter crisis in our hospitals? Given the apoplexy among Conservative Members that has greeted his statement today, will he consider bringing forward those payments to meet the pressing need that would appear to be found on the Opposition Benches?

Mr. Brown: I am grateful to my hon. Friend. He is absolutely right about what happened to the health service under the previous Administration. The total increase in spending on health as a result of all the measures we are taking will be nearly £32 million per constituency over the next three years. I think that the measure we have announced today, to give £250 million to the health service for the next five months to deal with the winter problems that may and sometimes do arise, shows that the Government want to see the national health service safe in our country. It is simply a pity that the Opposition cannot welcome it.

Sir Michael Spicer: Can the right hon. Gentleman give a brisk answer to a question to which he has not even given a long-winded one so far? How will raising public borrowing help to reduce interest rates?

Mr. Brown: The hon. Gentleman should look at what the Bank of England said on this matter. It said that the public spending decisions that we have made were in line with what it was expecting. If the hon. Gentleman looks at the August inflation report, he will see that it says exactly the opposite of what the hon. Gentleman is suggesting.

Mr. Bill Rammell: Does the Chancellor recall that in 1991 the then Conservative Government denied responsibility for the recession and blamed it on world economic affairs? Will he contrast that with their attitude now that they are in opposition: that the current slowdown in growth has nothing to do with world economic affairs? Does he believe that they were misleading then or now? Does he think that the bizarre—

Madam Speaker: Order. The Chancellor is responsible only for his economic policies, not for the Opposition's.

Mr. Elfyn Llwyd: The Chancellor referred earlier to the development of the Welsh economy. Can he confirm that his spending plans


will provide for the Treasury to pay match-funding in the event of the European Union according objective 1 status to west Wales and the valleys?

Mr. Brown: I can tell the hon. Gentleman that the comprehensive spending review dealt with those problems. The generous settlement made for public spending for Wales will allow industry, training, education and, of course, all the economic agencies to benefit from public money.

Mr. Michael Connarty: Does the Chancellor accept that most people represented by Labour Members, and possibly most of those represented by Opposition Members, accept that the purpose of his prudence in preventing overheating of the economy is being delivered in the public expenditure announced today and in previous Budgets? Does my right hon. Friend accept that what was described as wonderland economics is a joy compared with the blunderland economics of the previous Government?
I want to deal with the connection between inventiveness and enterprise and the university challenge fund. Is my right hon. Friend aware that some university representatives are saying that the venture capital organisations in the United Kingdom are slow in taking up the offer of intellectual property? Can he give us an assurance that he will look closely at the transfer of intellectual property so that it does not leave the country but is a boon to the country; while at the same time encouraging venture capital companies to form partnerships with the universities, which are very willing to do so?

Mr. Brown: I am grateful to my hon. Friend, who has taken a special interest in the matter. In the seminars on productivity that we held with business men and women, which drew on expertise not only from Britain but from across Europe and the United States, it became clear that the venture capital industry could do more in Europe, and Britain, to service high-tech and scientific inventions that may give rise to commercial products. The venture capital industry is doing far more in the United States, and people sometimes doubt whether Britain would have been able to cope with a company such as Microsoft, as the initial venture capital support would not have been available. We have taken some of the measures that we have taken for those reasons.
The university challenge fund is very much over-subscribed, as there was massive interest in it. I hope that we can extend the private partnership, so that there is backing for the public funds that were made available to the tune of £60 million. Our institutes of enterprise, which we are establishing today, will do a great deal to help transfer technology and bring scientific inventions to the

marketplace. I hope that, over the next few months, my hon. Friend will be able to follow developments in those matters.

Rev. Martin Smyth: I thank the Chancellor for the role that he played in the Industrial Development Board's recent trip to the United States. However, will he consider the views of the CBI Northern Ireland on a possible industrial fuels tax? Northern Ireland's road freight industry is already suffering, and power is much more expensive for people in Northern Ireland. Even an industrial fuel tax applied uniformly across the United Kingdom would place an extra restriction on Northern Ireland industry's ability to compete. Such a situation would create problems for the Chancellor in fulfilling his guarantee to give employment opportunities to the long-term unemployed.

Mr. Brown: I am grateful for the hon. Gentleman's first remarks, and welcomed the opportunity to join some of his colleagues in the United States for the launch of the investment programme for Northern Ireland. I believe that there is a willingness on the part of business in the United States to make new investment in Northern Ireland, particularly since new incentives—including our action on education, training and work—will make it very attractive to invest there. I shall regard the hon. Gentleman's second set of comments, on industrial fuel, as one of the first Budget representations.

Mr. Jim Cousins: I congratulate my right hon. Friend on holding fast to his spending plans, which are just and will create jobs. The Government intend to be a Government of the left and a Government of enterprise. For regions—such as my own in north-east England—that are facing the sharpest pressures of world markets, can he offer the prospect of any specifically regional programmes of public spending and development, to underpin the great work that he is set upon?

Mr. Brown: We are a Government of enterprise and of fairness. Conservative Members who believe that enterprise is achieved only at the cost of fairness, and that fairness is achieved only at the cost of enterprise, are living in the world of the 1980s—when it did not work, and Britain ended up as an unequal, unfair and, eventually, economically unsuccessful society.
Our proposal for regional development agencies—with which my hon. Friend has long been involved—is a means by which we can bring expertise to helping develop industries in the north. Our proposals on training and employment are also working at a regional level. Moreover, I think that my hon. Friend will agree after hearing some of today's scientific announcements that there is encouragement for regions to think of how they might apply for some of the funding.

Iraq

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook): With permission, I should like to make a statement on the latest developments in Iraq.
Last August, Iraq informed the Security Council that it was suspending co-operation with the United Nations Special Commission and the International Atomic Energy Agency other than on monitoring. The effect was to prevent both agencies from carrying out surprise inspections at sites that they suspected were part of a programme for weapons of mass destruction. The work of both agencies was confined to monitoring the status of sites that they had already cleared.
The Security Council responded with resolution 1154, which provided both a penalty for that violation of Saddam's agreement, and an incentive for him to comply. As penalty, we suspended the regular review of the continuing need for sanctions. As an incentive, we offered a comprehensive review if Baghdad returned to full compliance. Nevertheless, on Saturday, Iraq notified the Security Council that it would no longer co-operate with UNSCOM, even on monitoring.
As the outgoing President of the Security Council, Britain convened an emergency session, which agreed to a statement condemning the Iraqi action. It records the view of the Security Council that Baghdad's decision is a "flagrant violation" of Security Council resolutions and of the agreement it made with Kofi Annan on his visit to Baghdad in February. The Security Council's support for the statement was unanimous. It was fully endorsed by Russia, whose spokesman has said that Russia was "deeply concerned" about the Iraqi decision.
Baghdad's attempt to close down the work of the inspectorates coincides with evidence that Saddam Hussein continues actively to pursue his ambition to maintain his capacity to produce weapons of mass destruction. Only two weeks ago, a group of experts received the results of tests performed in French and Swiss laboratories to corroborate the US finding of traces of VX nerve gas in fragments of Iraqi missile warheads. The French laboratory found evidence consistent with the presence of nerve gas in the warheads, and both laboratories confirmed that Iraq had tried to decontaminate the warheads. For years, Saddam has maintained that Iraq had never achieved a deliverable VX weapon. Those discoveries expose his denials as one more lie.
Even greater anxiety relates to Iraq's programme for biological weapons. UNSCOM has concluded that Baghdad's most recent declaration of its biological weapons capacity fails to give a "remotely credible" account of the programme.
We are in close consultation with our allies to maintain a united front and to achieve the most effective pressure on Iraq. Today, a resolution will be tabled in the Security Council that will demand that Iraq immediately restores co-operation with both UNSCOM and the IAEA. That strong resolution has been drafted by Britain, and we will be working to achieve unity around it. We want to find a diplomatic solution, but we have always made it clear that all options remain open.
The latest decision by Baghdad is particularly perverse, as the Security Council agreed only last Friday on the terms of a comprehensive review of Iraq's compliance with its undertakings. Those terms held out the prospect of a time frame for completion of the work of UNSCOM and the IAEA, and could, in turn, lead to the lifting of sanctions on Iraq.
Any such progress can be achieved only with the full compliance of Baghdad. So long as Baghdad continues to conceal its capacity for chemical and biological warfare, and so long as it obstructs UNSCOM from revealing the truth about those programmes, there can be no progress towards the lifting of sanctions.
Our dispute is with Saddam Hussein. We have no quarrel with the people of Iraq. On the contrary, we have grave concern for the suffering that they are experiencing under Saddam Hussein. Only last month, Max Van Der Stoel, the UN special rapporteur on Iraq, presented his latest report, which concluded that there has been no improvement at all in the repeated violation of human rights by Saddam Hussein, including torture, summary execution, arbitrary arrests and persecution of minorities.
Britain took the lead at the United Nations in pressing for a doubling of the "oil-for-food" programme. Consequently, Baghdad can now sell over $10 billion of oil per annum to pay for food, medicine and other humanitarian goods. I am pleased to report to the House that the latest information available to the UN confirms that, as a result, there have been positive improvements in access to food and medicine.
Saddam Hussein appears to be gambling that the world will grow weary of his constant evasion and repeated confrontation. His calculation is that we will eventually give up and abandon the sanctions regime, without requiring him to abandon his ambitions for regional supremacy through weapons of terror. We must remain ready and resolute to prove him wrong.
It would be too dangerous for Iraq's neighbours in the region to leave Saddam Hussein with the capacity to produce weapons that could wipe out whole cities. It would also be too damaging for the authority of the United Nations if Saddam was allowed to break the agreement he entered into with its Secretary-General. He cannot, and he will not, be allowed to win.

Mr. Michael Howard: I thank the Secretary of State for his statement, and support his expressions of resolve. The House will appreciate that this is not the first time that Iraq has severely tested the will of the international community. It was only last February that, in order to avoid military action, it undertook to co-operate fully with UNSCOM and to provide immediate, unconditional and unrestricted access to inspectors. Iraq is now breaking that undertaking.
At the time, the Secretary of State rightly told the House:
If Saddam were now to be permitted to set aside all those decisions of the UN, and if we were to walk away and allow him to do so with impunity, there would be no point in invoking the power of the UN the next time we are confronted with a dictator threatening the security of his region or the lives of his people."—[Official Report, 17 February 1998; Vol. 306, c. 909.]


Does the Secretary of State stand by those remarks today?
At the time, the Prime Minister said that only
effective diplomacy and firm willingness to use force"—[Official Report, 24 February 1998; Vol. 307, c. 174.]
had brought about the agreement, and that nothing else would ensure its satisfactory implementation. Are the Government prepared to display equal resolve through the international community now? Can the Secretary of State say something about the deployment of British forces in the region, and about any preparations that may be under way to despatch more forces to the Gulf?
Can the right hon. Gentleman give the House an assurance that his final warning to Iraq will be more effective than his final warning to President Milosevic during the Kosovo crisis in the summer? Can he tell us more about the terms of the resolution to be tabled in the Security Council today? Is it the Government's view that a further resolution is necessary before force can be used if diplomacy fails?
Will the right hon. Gentleman also comment on the resignation of Richard Butler's deputy, Scott Ritter? Mr. Ritter accused the British and American Governments of turning a blind eye to Saddam Hussein's transgressions, in the vain hope that, if they gave way, Saddam would lay off. Does the Secretary of State think that, if those warnings had been heeded, the present crisis might have been avoided?
Finally, will the Foreign Secretary confirm that Iraq cannot pick and choose the people who are appointed by the international community to enforce its will? Does he agree that it would be a tragedy if Richard Butler and his work were cast aside in a futile attempt to placate Saddam Hussein?

Mr. Cook: I thank the right hon. and learned Gentleman for what I shall take as support for our position. He is, of course, absolutely right to say that this is not the first time that Saddam Hussein has tested the will of the international community—nor is it the first time in the past eight years. Saddam Hussein's testing of the international community did not commence after the general election. Whenever the previous Administration stood firm to him, we gave them our full support.
It is important that we remain patient, strong and resolute. We might as well be clear now that this will not be the last time that Saddam Hussein tests our resolve. We have to be firm and clear that he has to comply, and we shall have to be resolute the next time he seeks to test that resolve. There is absolutely no intention on the part of the Government to walk away from either the crisis in the Gulf or what we said on the previous occasion.
We remain ready to use all options. We have a dozen Tornados already in the Gulf, and we have maintained that presence ever since the previous crisis. We are confident that we have the basis on which, if required, we could put them into use. Resolution 1154, which endorsed the agreement reached by Kofi Annan in Baghdad, warned that violations would be met with the severest consequences.
Finally, in respect of Mr. Ritter, it is a bit rich to accuse the United States and the United Kingdom of being weak and irresolute in standing up to Saddam Hussein. Those two countries have been the firmest in making it clear that Saddam Hussein has to comply with the resolutions,

and it would give us a better prospect of Saddam Hussein recognising our resolve if the right hon. and learned Gentleman did not at every possible opportunity seek to undermine that resolve.

Mr. Gerald Kaufman: Is my right hon. Friend aware that his statement has not only regional but global implications, in view of the potential threat to world stability posed by the acquisition of nuclear and other non-conventional weapons by Iraq? Does he agree that the crisis has been coming for a very long time, and that, on recent statements that he has made, I have warned that things would not get better, and could get worse, without firm action?
Will my right hon. Friend confirm that there is now no scope for further negotiation with Iraq, because the United Nations Security Council resolutions in place require not negotiation but compliance by Iraq, and we have seen that, if negotiation does take place, Saddam Hussein violates any agreement he makes? Having confirmed that UN resolutions authorise the use of force, should that be decided on, will my right hon. Friend accept from me that, unless Saddam now backs down, there is no alternative to military action, which must come sooner rather than later?

Mr. Cook: My right hon. Friend is absolutely correct to say that what is now required of Saddam Hussein is compliance with the UN resolutions. The Security Council has no business and no power to enter into negotiations with Baghdad as to which bits of the resolution he chooses to comply with. The resolutions have been carefully considered and carefully calibrated.
Saddam Hussein must now comply with them in full, and he should reflect on the fact that, on this occasion, the Security Council has been united not only on the text, but in private comments and public statements criticising Baghdad. I have already told the House that all options remain open. Today, my right hon. Friend the Secretary of State for Defence met Mr. Cohen from the United States Administration, and they have issued a joint statement stressing that we are ready to use force if force is required.

Mr. Menzies Campbell: May I express my support for the terms of the statement, and the firmness in which it is couched? While not expecting the Secretary of State to trade intelligence reports across the Floor of the House, does he agree that, to justify the option of the use of military force, it is necessary to have hard current evidence of continued wrongdoing by Saddam Hussein? Is he satisfied that there is such current evidence? Does he further agree that military force should never be used in revenge or frustration, no matter how extreme the provocation, and that, if it is used, it must be proportionate and have clear political objectives?

Mr. Cook: I entirely concur with the hon. and learned Gentleman that, if force is used, it must be used not as an expression of personal frustration or revenge, but in a way consistent with the UN resolutions, seeking to secure the objectives of those resolutions. Sadly, however, the evidence of non-compliance by Saddam Hussein mounts by the month. He has not been in compliance with the resolutions since the start of August, when he suspended co-operation with inspections, and he is no longer in compliance even with those parts of the resolutions that provide for monitoring.
Perhaps even more pertinent to the case of Saddam Hussein is the fact that not only is he in clear violation of the UN resolutions, but he is in flagrant violation of the agreement that was signed in Baghdad following personal exchanges between himself and Kofi Annan, the UN Secretary-General. We should all keep firmly in front of us the fact that Saddam Hussein in his action on Saturday and in August is not just challenging the United States and the United Kingdom, but defying the agreement that he made with the United Nations, and challenging all members of the United Nations.

Mr. Dale Campbell-Savours: Are the oil exports from Iraq to Turkey by lorry, travelling by road through northern Kurdistan, in compliance with United Nations resolutions?

Mr. Cook: Baghdad has authority under the Security Council resolutions to export up to $10 billion of oil to purchase food, medicine and humanitarian goods. Some of the oil that is exported from Iraq comes under that programme. There is ample evidence that substantial volumes of oil are being exported from Iraq illicitly and illegally, and that the funds used from that do not go to purchase any humanitarian goods required by the Iraqi people; they support the extravagant life style of the elite in Baghdad, and pay for the weapons of mass destruction that are at the root of our concerns.

Mr. Douglas Hogg: Does the right hon. Gentleman agree that it is important that we should secure Security Council authority for any action? Does he further agree that it is important not to threaten that which we are not ready to perform? Does he further agree that, if military action is undertaken, we may have to contemplate a substantial and extended air assault? Finally, does he agree that every step should be taken to secure the support of middle eastern states?

Mr. Cook: I entirely agree with the right hon. and learned Gentleman's last comment. It is important that we work with our allies and friends in the region to keep Iraq isolated. They may have some difficulty in expressing the fact publicly, but they understand that they are in the front line with Saddam Hussein and are the countries most at risk if the international community walks away and leaves Saddam with the capacity to produce weapons of mass destruction. Of course we must have proper authority for any action that we contemplate. It is equally important to maintain the unity of the international community, which is stronger than it was last February. That is a source of great strength and leverage for us with Baghdad.

Mr. George Galloway: Is not the problem the total bankruptcy of UNSCOM as a credible player? A senior United Nations official recently described the head of UNSCOM, Richard Butler, to me as a "congenital liar". That is based on knowing him for decades. Scott Ritter, who was lauded from the Opposition Front Bench, has admitted since his resignation that he was working with Israeli intelligence, while being the deputy head of a UN mission in Baghdad.
In the past few hours, it has been revealed that four inspectors working in Iraq under pseudonyms and carrying false passports were Colonel Khadouri,

Lieutenant Shamani, Colonel Rabscon and Jador Dalai Shamoni—all operatives of Mossad, the Israeli intelligence service. We all hope that the inspectors can get back to work monitoring the awful weapons that exist not only in Iraq but throughout the region, not least in Israel; but a new and credible leadership of UNSCOM and transparency in its work will be a precondition for the restoration of credibility.
Above all, we need a time frame for ending the sanctions, which are killing 6,000 Iraqi children every month—not Ba'athists, not Saddam's officials, not the elite, but 6,000 Iraqi children every month—according to Mr. Dennis Halliday, the recently resigned UN official who quit his job in Baghdad because he said that the policy that he was being asked to implement was completely bankrupt.

Mr. Cook: I have heard of the reports that Baghdad has alleged that four people in UNSCOM were working for Israel, but I have had no corroboration of those reports, which stem from Baghdad. Of course, I shall happily answer any written question that my hon. Friend wants to put to me on the issue. Indeed, I undertake to write to him once we have clear information.
I strongly disagree with my hon. Friend's characterisation of Mr. Butler. I have known Richard Butler since long before he became the head of UNSCOM. I know him to be a diplomat committed to building a successful international community. My hon. Friend and most Labour Members would find a lot of common ground with Mr. Butler's wider views on foreign policy—and possibly even domestic policy. I therefore utterly acquit him of the charges that have been made against him. Baghdad's main complaint about Mr. Butler is that he has been too robust in carrying out the job that the UN asked him to do.
Finally, there is a simple remedy for the dire situation of some children in Iraq. It lies in the hands of Saddam Hussein. He could use the oil that he is smuggling out to maintain his elite and his programmes of weapons of mass destruction and put it into the oil-for-food programme, on which he has continually failed to meet the targets. Those resources could be used to meet the needs of his people instead of the needs of his military machine.
We have closely monitored the food and medicines going into the country. They are exempt from sanctions. There have never been sanctions on medicine. At the same time as there are complaints that there are not sufficient antibiotics in Iraq to treat the children, Saddam Hussein has imported specialist surgical equipment to carry out cosmetic surgery on those around him. Those are his priorities, and he is to blame for the suffering of the children.

Mr. Nicholas Soames: Is the right hon. Gentleman aware that, following the Annan agreement, the workings and timetable of UNSCOM were severely compromised? The present state of weaponry of the most dangerous sort in Iraq may be worse than we had reason to believe earlier.
Secondly, will the right hon. Gentleman say a little more about the point raised by my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg) on the importance of securing the support of our friends and allies in the Gulf? Is he aware that there


is a great deal of suspicion of American motives in the Gulf states, which find it particularly hard to swallow the discrepancy between the way in which the Americans deal with the Israelis and the way in which they deal with Iraq? Although those are largely matters of fantasy in their minds, it is important that the issue should be clarified, and that our support for the Americans in securing their safety should be well understood.

Mr. Cook: I disagree with the hon. Gentleman on the Annan agreement compromising the work of UNSCOM. The agreement led the way for UNSCOM to carry out intrusive inspections on presidential sites. A number of such inspections took place. I cannot give the hon. Gentleman an assurance that the position is not worse than we fear. Even if it is only as bad as we fear, that is severe enough to justify us in maintaining the pressure on Iraq to come into full compliance before there can be any move to remove sanctions.
I welcome the progress that has been secured in the middle east peace process. It is a modest step, but it is the first step that we have had for two years, and as such is particularly welcome. We must build on the momentum created by that agreement. I assure the hon. Gentleman that Britain, Europe and the United States will make it clear that we want compliance with the Security Council resolutions that affect Iraq, and agreement and progress on the middle east peace process.

Mr. David Winnick: Leaving aside the voice of Baghdad that we heard a moment ago, is it not encouraging that those countries that were reluctant to act earlier this year are now realising the cat-and-mouse antics of the criminal regime, and taking a more forceful position? If it was right—as it obviously was—a few weeks ago for the international community to give an ultimatum to the Serbian leadership, should not the United Nations very quickly give Saddam Hussein an ultimatum that he should comply entirely with the United Nations weapon inspections, or military action will be taken? Unfortunately, force—or the threat of force—is about the only thing that the bloody dictator in Baghdad understands.

Mr. Cook: There is no need for any fresh ultimatum. Resolution 1154 made it clear that a violation of the Security Council resolutions or a failure to comply with the memorandum of understanding signed with Kofi Annan would lead to the severest consequences. I also entirely endorse my hon. Friend's comment in the earlier part of his question. In the past few days, the countries that have felt most indignant about the action by Baghdad are those that have hitherto pleaded for understanding of Iraq's position and the need to offer light at the end of the tunnel. We entirely agree with them about the need for light at the end of the tunnel, but it is now becoming apparent to all that Saddam Hussein has no intention of responding to that incentive, and will continue to test our resolve until we make it plain that there is no other way out of the sanctions regime for him.

Sir Peter Emery: Will the Foreign Secretary make it clear that Iraq should have no doubt that the House is united in standing up to ensure that the United Nations resolutions are carried out? While making that clear, however, is it not important to be absolutely

fair and acknowledge that, although there is complete and proper condemnation of the non-compliance with the work of UNSCOM, it is acknowledged that the IAEA work on nuclear weapons has been carried out? Last week, the IAEA gave the Science and Technology Committee of the North Atlantic Assembly the assurance that, at that moment, it had no criticism. When we present a case, we must ensure that we do not over-egg the pudding.
Secondly, why is another United Nations resolution necessary? Surely resolution 1154 gives us the power to take action, and the resolution last Friday—or was it on 29 October?—showed the Russians and the French backing the proposed action. Why do we need another resolution?

Mr. Cook: Saturday's statement was a statement, not a resolution. I think, and I am sure that the whole House would agree, that there is merit in making it clear to Baghdad that there is unity in the Security Council around the strong resolution that we have drafted, which condemns the violation of the agreement and demands immediate compliance with both the resolution of the Security Council and the Annan agreement.
The right hon. Gentleman asked about the different portfolios. There are four under examination, one of which is the nuclear file. Substantively, he is correct; the agency reported last month that it could now move from intrusive inspection to on-going monitoring and verification. It might also be possible for us to contemplate a similar step concerning the missile portfolio.
None of that, however, removes any of the points of concern that I have expressed concerning the state of the chemical and biological weapons portfolios. On both those fronts, it is clear that Saddam Hussein has the capacity to produce deliverable weapons of mass destruction, and until all four portfolios can be closed, sanctions must remain in place.

Mr. Harry Barnes: My right hon. Friend has correctly pointed out that Saddam Hussein presents a serious danger to his middle eastern neighbours. What is their response to that danger? What are the attitudes of some of those neighbours, such as Iran, Syria and the Gulf states?

Mr. Cook: We seek a close dialogue with those countries, and will undertake our own diplomatic efforts in that regard. Mr. Cohen, the United States Secretary of State for Defence, is on his way to the Gulf to consult those allies and discuss their approach to the present crisis.
I remind the House that, when we last had a confrontation with Baghdad, in February, there was considerable understanding from the Gulf states, which adopted a strong statement making it clear that, if force were used, responsibility for its being required would lie squarely with Baghdad. I hope that we will see the same degree of understanding and support from those countries now. After all, they know that, if the United Nations walked away, they are the ones that would be at risk from Baghdad's military machine.

Mr. Tim Collins: Given the devastating allegations made earlier this year by Scott


Ritter, will the Foreign Secretary place on record the fact that, henceforth, his office and his officials will give absolute and unequivocal backing to any and all requests for assistance from UNSCOM in its vital work on behalf of the world community? Will he also make representations to his colleagues in the Ministry of Defence that now may not be the best time to cut defence spending and reduce the number of combat aircraft available to the RAF?

Mr. Cook: Whether Mr. Ritter's allegations are devastating depends on whether one regards them as credible. I have no need to give the hon. Gentleman an assurance that henceforth we will give full support to UNSCOM; we have always done so, and Britain has been among the leading supporters of its work. After everything that the previous Administration did to cut the finances and resources of our defence forces, a period of silence from the Opposition on that score would be welcome.

Mr. Ernie Ross: May I assure my right hon. Friend that everyone in the House will agree with the actions that the world community has taken? The latest episode shows that Saddam Hussein is a past master of using events in the region to his advantage. We have only to consider the fact that King Hussein is in America receiving medical treatment, and that the middle east peace talks, although there was agreement at Wye, have yet to move forward, to see why Saddam Hussein felt confident enough to test the will of the world community.
Unless the world community is absolutely resolute in its determination to oppose Saddam Hussein and bring him to heel, he will continue to flout the resolutions, with which he still has not complied. The message must go out from the House that we are united in seeing through the antics of that idiot.

Mr. Cook: I agree that Saddam will continue to play box and cox with the world community, in the hope that on some occasion we shall give up and go away, and leave the ring to him. It is important that he understands that we will not do that this time, or any other time. The secret to our carrying conviction when we say that is to appear united both as a nation and as a member of the international community.

Mr. Desmond Swayne: Given the grave nature of the capabilities of Saddam Hussein that are now being discovered, and the desire that our defence policy be foreign-policy-led, will the Secretary of State make representations to the Ministry of Defence to ensure that we maintain a nuclear, biological and chemical capability in the Territorial Army? Does he agree that the decision of the United States to create 170 such units is instructive in that context?

Mr. Cook: I am not entirely sure that the hon. Gentleman is rising to the gravity of the international issue that we are considering. We have no evidence that Saddam now has the capability to hit the United Kingdom. None the less, we are determined not to leave him in possession of the capability that he has.

Mr. Mike Gapes: Will my right hon. Friend utterly reject the propaganda by Radio Baghdad,

and any little echo of it in the House or elsewhere, and make it clear that there can be no suggestion of equivalence between Israel and Iraq? That is first, because there is an agreement between Israel and the Palestinians made at the Wye plantation, which we greatly welcome, and secondly because the Israeli people can throw out their Government, whereas the Iraqi people, despite what their friends seem to think, cannot, because they have a dictatorship that has never been elected.

Mr. Cook: My hon. Friend draws a clear and important contrast between Iraq and Israel. In Israel there is a lively, open and free debate about the peace process and the next steps that the country should take. That underlines the stark contrast between the two. None the less, I hope that it will be possible for us to build on the recent agreement to achieve progress in the middle east peace process, and that it will provide stability for the region. I hope that we shall be able to demonstrate to the countries involved the fact that we seek even-handedly to build stability and security throughout the region.

Mr. Crispin Blunt: Will the Foreign Secretary confirm that we are now in a more serious situation than in February, because of Iraq's violation of the will of the international community? Backed by UN Security Council resolution 1154, are we not back to the position as of February, except that the agreement with Kofi Annan has also been violated? Will the right hon. Gentleman address again the concerns of my right hon. and learned Friend the shadow Foreign Secretary about the Security Council resolution that he is tabling today, and ensure that it is at least as strong as resolution 1154, so that no one can take the view that the international community has stepped back from the position that it took last February?

Mr. Cook: I can certainly assure the hon. Gentleman that we have no intention of weakening the position of the international community at the present time, and that will not be the effect of the draft text that we have prepared for debate within the Security Council. He is right, in the sense that the international community is in a stronger position now than it was at the start of the year because of the passage of resolution 1154 and the signing of the memorandum of understanding. It is now quite clear what Saddam Hussein has to do. It is quite clear that he accepted that in February. It is also quite clear what the consequences would be of his violating that understanding.

Mr. Julian Brazier: Is it not clear that giving effect to those aims may eventually require more than air strikes, which are in danger of becoming the 20th-century equivalent of sending a gunboat? Will the Foreign Secretary ask his colleagues in the Ministry of Defence to revisit the assumptions that they have made in the strategic defence review on sustainability across all three services and in our defence industry, as the Americans are doing at this very moment?

Mr. Cook: I must remind the House that this Government took office after a period of substantial and continual cuts in Britain's defence capacity. Those cuts have now been arrested. We have produced a strategic defence review which meets the real needs of Britain in


the modern world. It is about time that those hon. Members who cut British defence spending in office stopped trying to preen themselves as the people on the side of the forces.

Mr. Andrew Robathan: I am sure that almost everybody in the House would commend the Foreign Secretary on his resolve. However, he speaks of patience—does he not think that the world has been patient for long enough? Will he confirm that all avenues of the UN have been explored over eight years, yet Saddam Hussein still undermines the stability and peace of the region and terrorises his own people?
Does the right hon. Gentleman agree that Saddam Hussein's regime has no legitimate authority, but only the authority of force and the de facto authority that that gives him? The Foreign Secretary has said that he believes that we have no argument with the people of Iraq. Will he therefore take steps, through the UN, to arraign or indict Saddam before either a specially set up international tribunal or the projected International Criminal Court?

Mr. Cook: Saddam Hussein is the best single case for the International Criminal Court which we supported in Rome in the summer. I very much hope that it will be possible for us to make as rapid progress as we can in getting that court set up. In the meantime, we remain open to proposals for an international tribunal specifically to consider Iraq and Saddam Hussein. The hon. Gentleman is right to say that Saddam is plainly guilty of major atrocities and offences against humanitarian and international law, and it is entirely regrettable that, at present, there is no international mechanism to hold him to justice. We would wish to see that there was such a mechanism.

BILL PRESENTED

WILDLIFE

Mr. David Lepper, supported by Mr. David Chaytor, Mr. Cynog Dafis, Mrs. Helen Brinton, Ms Julia Drown, Jane Griffiths, Mr. Roy Beggs, Mr. Matthew Taylor and Mr. Tom Brake, presented a Bill to provide for conservation purposes to be furthered by any person discharging a function under the Wildlife and Countryside Act 1981; to make new provision for the protection of certain species and sites; and for related purposes: And the same was read the First time; and ordered to be read a Second time on Thursday 19 November, and to be printed [Bill 252].

Conduct of Referendums

Mrs. Eleanor Laing: I beg to move,
That leave be given to bring in a Bill to set up an election commission with powers over the conduct and financing of referendums.
Referendums have not been a traditional part of our democratic system. It is regrettable that, under the present Government, they are becoming ever more frequent. It is sad that a Government with so large a majority do not have sufficient confidence in their own policies to accept responsibility for them.
I accept that, in certain cases—where major constitutional change is involved—it is right to consult the people. However, a referendum is not a mere opinion poll to be used at the whim of the Government of the day. Opinion polls and focus groups have become popular with the Government, and we all know that if one asks the right question, one gets the right answer—or, rather, if one frames a question in a certain way, one will get the answer one wants.
That is all very well if the object of the exercise is to determine which soap powder washes whiter, or which instant coffee tastes most like the real thing. Such a cavalier approach is not acceptable when the point at issue is whether there should be a fundamental change to our voting system, whether the pound should be merged with the euro, or whether the composition of this Parliament itself should be altered. We are likely to be faced with referendums on all three of those issues, among others, some time in the near future.
It is truly incredible that the Government are willing to conduct referendums on such fundamental aspects of our democratic system, but are unwilling to entrench that very process of consultation in a properly determined framework. I hope that the House will agree that it is not only desirable but necessary to establish fair and clear rules, and to appoint an independent arbiter to govern the conduct of referendums.
The Bill will give legislative effect to the reasoned plea for real referendums—a campaign which was launched by my Conservative colleagues, and which has the support of hon. Members from all parties in this House, several Members of another place, the Electoral Reform Society, Charter 88, the Constitution Unit and the Institute for Constitutional Research. The Bill will also implement the recommendations of the Neill committee on standards in public life, which were published last month.
The main effects of the Bill will be: first, to set up an independent commission, the members of which shall be nominated not by the Government but by the Speaker; secondly, to give a remit to the commission to report within three months on a clear set of rules to govern the conduct and financing of referendums, including such issues as who is eligible to vote, what constitutes a sufficient majority, how the question can be worded and how access to public service broadcasting shall be determined; thirdly, to prohibit the holding of any referendum except those conducted in accordance with the rules laid down by the independent commissioners.
The Electoral Reform Society has called this a level playing field for referendums. It is hard to imagine why anyone who upholds democracy would wish to see a


referendum conducted other than on a fair and level playing field. If the purpose of consulting the people is to secure legitimacy for important constitutional decisions, first, voters must be well informed about the arguments on both sides of the campaign, and, secondly, the side which loses must be confident that the fight was fairly conducted.
For those two conditions to apply, the information campaigns must be adequately funded, and the funding must be equally balanced. It will therefore be necessary to provide for public funding for the campaigns, as the Neill committee recommended. It is utterly absurd that, at present, we have a democratic system which conducts general elections under strict rules—to our great credit in the UK, as one of the oldest and most stable democracies in the world—yet we have, over the past year or so, condoned a situation in which the Government have been able to spend substantial sums of taxpayers' money promoting only one side of a referendum campaign—for example, in the outrageously one-sided campaign in Wales. There can be no argument—it simply is not fair.
It is essential that an independent commission should lay down reasonable, clear and fair rules for funding on both sides of referendum campaigns as a matter of urgency, and certainly before another referendum is called—which, given the new-found enthusiasm of some Ministers for a single currency, could be at any minute.
I am pleased to have the opportunity to ask leave of the House to bring in this important Bill, but it should not be left to a humble Opposition Back Bencher to bring this matter before the House and to attempt to put into legislation a framework for the fair conduct of referendums. If, by any chance, the Bill fails to become law, and I suppose there is every chance that it will not— [HON. MEMBERS: "Hear, hear."] I am grateful for the support of my hon. Friends. It is a pity that we are nearing the end of this Session. I sincerely hope that every hon. Member who believes in defending the democratic process will join me in calling on the Government to produce a Bill that will have the same effect in the next Session.

Question put and agreed to.

Bill ordered to be brought in by Mrs. Eleanor Laing, Mr. Martin Bell, Mr. Simon Burns, Mr. Nigel Evans, Mr. Michael Fabricant, Mr. Christopher Fraser, Mr. Bernard Jenkin, Miss Julie Kirkbride, Mr. Oliver Letwin, Mr. John MacGregor, Mr. Desmond Swayne and Mr. Shaun Woodward.

CONDUCT OF REFERENDUMS

Mrs. Eleanor Laing accordingly presented a Bill to set up an election commission with powers over the conduct and financing of referendums: And the same was read the First time; and ordered to be read a Second time on Wednesday 18 November, and to be printed [Bill 253].

Personal Pensions Mis-selling

[Relevant documents: The Minutes of Evidence taken before the Treasury Committee on 6th and 14th May, 25th June and 2nd July (HC 712-i to iv).]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Hill.]

The Economic Secretary to the Treasury (Ms Patricia Hewitt): I welcome the opportunity to debate personal pensions mis-selling. It is a matter that directly affects the lives of many people, but it also raises deeper questions that affect us all, about the way in which the pensions industry is run, how it is structured and what role it can and should play in helping people provide for their futures.
The scale of pensions mis-selling is profoundly shocking. Hundreds of thousands of people have been mis-sold pensions and as many as 2 million people's cases will need to be looked into. The sheer scale of the problem makes its resolution a priority for the Government.
The matter is also of central strategic interest to the Government. We are facing a future in which people increasingly need to save. Employment is less certain. Increasingly, people can look forward to long periods in retirement and it is not possible through the tax system alone to help everyone to enjoy the standards that they have come rightly to expect.
However, before saving, people need to have confidence in the products that they use and the companies that look after their savings. The pensions mis-selling episode of the late 1980s and the early 1990s was a terrible betrayal of that confidence and forceful action is needed to put it right.

Mr. Nick Hawkins: Does the hon. Lady recognise that she and her ministerial colleagues substantially damaged the very real hope that people have of providing for themselves by giving the impression that the whole industry is riddled, if not with corruption then certainly with incompetence? She has seriously damaged people's opportunity to provide for their future while at the same time the Government are constantly raiding the state pension.

Ms Hewitt: That is absolute nonsense. The damage was done to people's confidence in the financial services industry by those responsible for the mis-selling of personal pensions. It was compounded by the failure of the previous Government, whom the hon. Gentleman supported, to put right the scandal of that mis-selling when it was first discovered. I shall return to that matter.
The performance of the financial services industry is also a vital ingredient in the future success of the United Kingdom economy. Many of the failings that led to mis-selling, and indeed to the delays in putting it right, are symptomatic of deeper problems within some—not all—pension firms. Senior management have to take their responsibilities seriously and ensure that their firms have effective management systems and that due priority is given to proper customer care. Firms must deal with those issues in their own commercial interests. Any firm that fails to look after its customers properly can scarcely expect the public's confidence or custom.
Delay is one of the problems that has dogged the review. Mis-selling started in 1988, and the research that confirmed the extent of the problem was published in 1993. The review was started in 1994. The first deadline for completing the priority review was December 1996. The deadline came and went and only a tiny proportion of cases had been dealt with—delay after delay.
Thanks to my predecessor and to determined action by the regulators, the industry was finally jolted into action last year. Now, genuine progress has been made. More than three quarters of the most urgent cases—the priority cases—have now been resolved. The life companies in particular have made big strides. On average, they have now resolved approaching 90 per cent. of their priority cases, and some have done even better. By the end of the year, all firm priority cases, or face the consequences.
Even after that milestone is finally reached, much will remain to be done. I intend to see that the momentum that we have established since the general election is maintained. Now, all the firms must gear up to tackle phase two of the review, which broadly speaking will deal with the cases of younger people. In other respects, it is simply an extension of the phase one process, although there is a new approach—an innovation—to identifying which investors should be in the review, building on the experience of the first phase. Because of that, the phase two review process should be less onerous for firms.
In maintaining the momentum of the review, I regret to say that the main challenge that I face—still—is resistance from parts of the industry. That is not to say that all in the industry are of the same mind. I am pleased that many, including some independent financial advisers, are now genuinely committed to the review process and see the benefits of getting on with the job. Some have even gone so far as to re-examine the way in which they do business and to learn the lessons of the past, because they know that that is the best way forward. I urge all firms to follow their example of constructive action.
The industry has to pull together if it is to haul itself out of the hole that it dug for itself in the late 1980s and shape up to the challenges of the new millennium. I believe—I am sure that right hon. and hon. Members would agree—that the life industry can and should be a world-class industry, but first it must face up to its weaknesses and deal with them. It is not all good news. There are still some deep pockets of resistance.
The message from the Government has been clear and consistent: all firms must get on with their reviews or face the consequences. I find it extraordinary that there are still some people in the industry who seem to think that they are different and that this message does not apply to them.

Mr. John Butterfill: Does the hon. Lady agree that it is surprising that some firms against which no complaint was made and in which no fault was found in phase one, are still being asked to go through phase two, look into every policy that they sold as independent financial advisers and conduct a total review, when there is not a shred of evidence to suggest that they engaged in any mis-selling?

Ms Hewitt: I thank the hon. Gentleman for that comment. It is encouraging that there are firms that found in their phase 1 review that they had not mis-sold any

personal pensions. That should give them confidence as they move forward to phase 2. However, the fact that they achieved a satisfactory result on the priority cases—the older investors—does not mean that they can be excluded from the process of reviewing the advice that was given to younger investors. The younger investors also matter, and are entitled to have their cases looked at.

Mr. Hawkins: Does not the hon. Lady understand that many of the smaller independent financial advisers, who are struggling to make ends meet and to run a successful business, do not have the resources or vast amounts of time to waste on investigating matters that there is no need to investigate? The ludicrous naming and shaming approach that the Economic Secretary has adopted, and the idea that no one could ever lose money in any circumstances, will have one result: there will be no independent financial advisory sector, because she will have put all the IFAs out of business.

Ms Hewitt: That is nonsense. I shall develop my argument about what is going on among some independent financial advisers. Some of them seem to think that their inaction during phase 1 of the review was defensible. Faced with phase 2 of the review, they still choose to blame everyone except themselves. There are hundreds of thousands of people—constituents of all of us—younger as well as older, who have lost out as a result of being sold products that were wrong for them, in breach of the regulatory rules that were in force at the time. The firms concerned have a clear responsibility to establish whether any of their customers deserve redress as a result, and to make redress where it is warranted.

Mr. Phil Willis: Does not the hon. Lady recognise that those regulations were not in place? They were applied retrospectively. That is the kernel of the problem for the small independent financial advisers, who acted in good faith and now find, with rules being applied retrospectively, that they are caught up in an awful debacle.

Ms Hewitt: I am extremely sorry that every Member of the House, whether in personal meetings with constituents who are IFAs or through the circular letters that have come from the Independent Financial Advisers Association, has repeatedly been misled as to the true situation.
The first thing that I did when I took responsibility for the review of personal pensions mis-selling and encountered the lobbying from the IFA Association was to press the Treasury and the regulators on the issue, to find out what rules were in force at the time. The regulations that were in force at the time, under the regulatory framework—inadequate though it was—put in place by the previous Government, stated that products that were sold by independent financial advisers or by life firms had to be suitable for the investor. The regulations also required those selling products to keep records of the sales. One of the difficulties facing many—not all—of the IFAs in the current review is that they did not keep adequate records—

Mr. Butterfill: Adequate.

Ms Hewitt: Adequate records. That in itself is a failure of regulatory compliance.

Mr. Nick St. Aubyn: When an assessment is made of the advice given to their customers, will IFAs


be deemed to have acted reasonably in working on the basis of the market conditions at the time, or is the suitability of their advice to be assessed in retrospect, in the light of the extraordinary changes in market conditions that have occurred over the past 10 years, in particular the dramatic fall in annuity rates?

Ms Hewitt: The hon. Gentleman, possibly, and the IFAA, certainly, are confusing two different issues. One is whether the product was sold in compliance with the rules in force at the time. The judgment as to suitability can be made only in the light of the regulatory conditions in force when the product was sold and in the light of the then market conditions. If it transpires that a product was mis-sold, the issue of whether there was a loss as a result of that mis-selling must be addressed. The loss can sensibly be calculated only by reference to what has happened since the product was sold. Those are two different parts of the test that must be considered before a decision is made to give compensation to the investor.

Mr. John Greenway: rose—

Ms Hewitt: I want to make a little progress with the argument. Every Member of the House has been lobbied—

Mr. Ivan Lewis: Does my hon. Friend agree that financial advisers who give good advice have nothing to fear from the regulations? Many of them will welcome the fact that good practice is being promoted and encouraged. Financial advisers who gave and give sound professional advice will benefit from a transparent system. Not only should we be on the side of the consumer and the investor, but we should aim to drive up good practice. Any financial adviser worth his salt will want to function in an industry where those who provide sound professional advice flourish, and those who do not are held to account.

Ms Hewitt: My hon. Friend is right. That is the central argument that should be made by every right hon. and hon. Member in response to the misleading lobbying and representations from the IFAA. That organisation has made it clear—

Mr. John MacGregor: rose—

Ms Hewitt: I want to make some progress, if I may.

Mr. MacGregor: On the hon. Lady's point about loss, may I ask her a question? Losses will be calculated in the next year or two years. If market conditions change again, which is entirely possible, and the loss ceases to be a loss, and if the person concerned does not get the pension for another 20 years, which is very likely under phase 2, will redress be made at a later stage if the loss disappears?

Ms Hewitt: I shall return to that and other points. I want to develop the argument. However, I observe—I hope this will not be thought unfair—that the right

hon. Gentleman is a director of one of the companies that was substantially fined by the Personal Investment Authority for not making adequate progress in the review.

Mr. MacGregor: On a point of order, Mr. Deputy Speaker. As you know, I have indicated that I wish to speak in the debate. The first thing that I shall do is to declare my interest, of course.

Mr. Deputy Speaker (Mr. Michael Lord): That is not a point of order for the Chair.

Ms Hewitt: The IFAA has made it crystal clear that it wants to stop, or at least delay or curtail, phase 2. The leaflet, which many hon. Members have seen, is clear about that. I do not find anything surprising—

Mr. Greenway: Will the hon. Lady give way?

Ms Hewitt: No, I am not giving way at this point. I have seen the leaflet, and the implication is entirely clear. The IFAA is an organisation whose track record has been to put its members' commercial interests ahead of the rights and welfare of their customers. It went as far as to take the regulators to court over the priority review in 1995. It lost that action, but it held up the review.
In all our constituencies there are people who trusted poor advice by some IFAs, and whose future may well be much poorer as a consequence. On average, in each constituency represented by a right hon. or hon. Member, for each IFA firm in that constituency, there are about 100 victims of poor advice from an IFA or a life office. If the IFAA and its supporters had their way and delayed or even stopped phase 2, those people would be left high and dry. Neither the Government nor the regulators will allow that to happen. The second phase of the review will go ahead. We will not allow the IFAA to wreck people's entitlement to the redress that they deserve.
I take the opportunity presented by this debate to ask the industry as a whole to think long and hard about the consequences of seeking to frustrate progress on phase 2. What would happen if it succeeded? The first damaging effect is that the industry would prolong the uncertainty for the victims of mis-selling, adding insult to injury. Secondly, it would prolong the agony for the industry as a whole. Despite a slow start, many in the industry have come to the view that the sooner it puts the shameful pensions mis-selling episode behind it, the better. The last thing that respectable firms want—or should want—is further delay and postponement of the day when the reputation of the industry recovers.

Mr. Quentin Davies: The hon. Lady has asked many questions of the industry, but I have a fundamental question for her that she has not addressed so far. What is the sense or justice in persuading IFAs to compensate those who have been mis-sold pensions and extracting large amounts of money out of life offices and pension companies without making any attempt to get those managers and salesmen who were responsible for the mis-selling to make a contribution? As things stand, 90 per cent. of the burden of compensation in the case of proprietary companies and 100 per cent. in the case of mutual companies is being borne by other innocent pensioners. One category of the innocent is compensating another category of the innocent while the


guilty—the managers and the salesmen who undertook the mis-selling, often very cynically and dishonestly—get away scot free. What is the sense in that?

Ms Hewitt: We have looked very carefully at where the costs of compensation should fall, and we have settled on a very clear and proper principle: the costs of compensating the victims of mis-selling should be shared and borne by those who profited from the mis-selling. Hence, the burden is distributed between policy holders and shareholders. Within mutual companies, it is borne by the policy holders.

Mr. Davies: The hon. Lady has clearly not understood my question. She is talking about distributing the cost of compensation between pension holders and shareholders. I am not talking about that. The really guilty ones are those individuals who did the mis-selling: the managers and the salesmen. There has been no attempt whatever to get them to pay up. Why not?

Ms Hewitt: I am astonished that the hon. Gentleman did not succeed—perhaps he did not try—in persuading the previous Government, whom he supported so strongly, to initiate the action that we are now taking to resolve this scandal. If the hon. Gentleman listens, as I do, to those who work in the industry, he will find that a substantial degree of pain has been experienced by those who have faced the consequences of their actions and, in some cases, lost their jobs as a result.

Mr. Steve Webb: I pay great tribute to the hon. Lady and to her predecessor for the vigour with which they have pursued the mis-selling of personal pensions. However, the Treasury seems to have washed its hands of the mis-selling of free-standing additional voluntary contributions—which seems to be the same sort of issue. Will the hon. Lady give an assurance that she will pursue the mis-selling of FSAVCs with the same vigour as she is pursuing personal pensions mis-selling?

Ms Hewitt: I thank the hon. Gentleman for making that point. The Financial Services Authority has just published the results of its research into the mis-selling of free-standing AVCs. However, it is important to stress—I am sure that the hon. Gentleman understands this—that the problem involving the inappropriate sale of free-standing AVCs compared with AVCs into occupational pension schemes is of a very different, and fortunately lesser, order than the mis-selling of personal pensions. The latter removed people entirely from their occupational pension schemes.
I return to my point about the Independent Financial Advisers Association. If it and its supporters were successful in delaying phase 2, they would send a clear message to the customers of all IFAs that they are dealing with a second-class part of the industry, which—if it possibly could—would deny them the usual regulatory procedures. It would send the message that customers are dealing with people who appear not to believe in the need to put right past wrongs and take responsibility for their

actions. Any firm that puts its weight or its money behind that campaign should not expect—and will not receive—any sympathy from me or my colleagues.

Mr. Greenway: rose—

Mr. Butterfill: rose—

Ms Hewitt: No, I will not give way. I have done so repeatedly during my speech. The IFAA should not expect any sympathy from the public or from the more forward-looking parts of the industry. Following the IFAA would be an act of blatant folly and, frankly, commercial incompetence.
It is perhaps not surprising that the life companies that are sympathetic to the IFAA's cause have been rather slow to identify themselves. Perhaps they are embarrassed—I can understand that—or perhaps they are aware of the damage that it would do to their reputations. My advice to any life company or any IFA that is pondering whether to lend its weight to the IFAA's campaign is to consider whether a more constructive approach might serve its interests better.

Mr. Greenway: rose—

Ms Hewitt: I have given way repeatedly and I have made it clear that I do not intend to take any further interventions at this point. Hon. Members will have a chance to contribute to the debate, and I shall respond to their points later.
The Association of British Insurers has taken a laudable lead in this area. In a display of considerable foresight, it is launching a lifeboat facility to assist IFAs with processing cases and financing the costs of redress. It is up to the industry to make that initiative a success. I regret the fact that support for the initiative among the life companies is apparently incomplete. It is a very constructive and cost-effective way forward, and it is disappointing that some elements of the life industry have not yet decided to support the ABI initiative.
It is fundamental to the industry's recovery that the contempt for the public that was shown in the past becomes a thing of the past. Support for the ABI's initiative, which will assist the process of starting, progressing and completing phase 2 successfully, would help to restore public confidence. I urge all right hon. and hon. Members to emphasise to their IFA constituents that the existence of their industry is precisely the stake with which they are gambling. The path that some of them are pursuing will only damage their business.
In the longer term—my hon. Friend the Member for Bury, South (Mr. Lewis) made this point well—if compliance is poor and remedial action taken grudgingly, if at all, will reputable providers continue to sell through IFAs and risk the recovery of their own reputations? Will the public want to buy from them? Why should people be prepared to buy from IFAs when they believe that their complaints will not be dealt with if things go wrong?
Looking ahead, the Government are determined to act to ensure that scandals of this kind cannot easily occur again. We have learnt the lessons of the past and our clear conclusion is that we need a more effective system of regulation. One of the main reasons why the regulatory system failed to prevent or deal more swiftly with the


mis-selling of personal pensions was that firms simply did not abide by the regulatory rules. Proper enforcement of the rules must be the cornerstone of good regulation.
It is true that the regulatory structure for investment business established under the Financial Services Act 1986 is not capable of delivering the standards of investor protection that the industry and the public have the right to expect. The multi-regulator system—with the old Securities and Investments Board at the top and the self-regulating organisations, such as the Personal Investment Authority, on the front line—allows too much opportunity for overlap, gaps and confusion.
Some of the regrettable delays that occurred—and to which I referred earlier—in getting the pensions review off the ground were a direct result of one organisation, the SIB, setting out the framework for action but others, the self-regulating organisations, having to carry it through. The Government's published plans for reform will ensure that none of the problems associated with the two-tier structure arise again. The regulators will be given a structure and powers that are more conducive to speedy and effective action.
We also intend to ensure that the interests of consumers receive due weight in regulation and in Government policy development. The previous Government's failure to do that contributed to the mis-selling of pensions on a shocking scale.
We need also to empower consumers. People need to be much better able to understand what it is that they are buying. Education combined with the regulatory requirement on firms to provide key information on the products that they are selling will have a powerful effect on consumers' ability to compare products and will help people to help themselves.
Looking to the future, the Government are reforming the way that financial services are delivered. I recently announced our plans to set CAT—charges access terms— standards for individual savings accounts. That will give consumers the information that they need to understand what they are getting, so that where necessary they can exert genuine pressures on providers to offer good value. Pension reform is also on the agenda. The lessons that we have learnt from the pensions mis-selling episode are very much at the front of our minds as we set about that task.
I am also pleased to say that the Financial Services Authority is working with the thrust of the Government's productivity agenda to develop a better understanding of the competitiveness of United Kingdom financial services and the ways in which intelligent, better regulation can be a key source of competitive advantage in the modern global economy.

Mr. Barry Sheerman: Does my hon. Friend agree that that is the sort of phase that we want to see? We want to see this phase of financial services put behind us, with Ministers shouting at the industry and the industry shouting back. From my experience in other industries, I believe that co-operating to give a world-class service to consumers is what we should be about.

Ms Hewitt: My hon. Friend is absolutely right. I have no desire to shout at anybody. I never shout at anybody. However, I am not prepared to let anyone in the industry

get away with some of the misrepresentations and delaying tactics that have been used. My hon. Friend is right to stress that it is in the interests of a competitive world-class financial services industry, including the providers and the advisers within it, to get phase 2 under way and successfully progressed as quickly as possible.
The FSA will have a specific duty under our proposals to have regard to the desirability of maintaining the competitiveness of our financial services. It will be working also to promote disclosure and customer understanding of the risks and benefits of investing in different financial products and services.
The Government inherited a terrible scandal affecting very many people. The previous Government simply did not have the guts to put things right or to give the regulators the tools and support that they needed. Since May 1997 giant strides have been made. The pressure that my predecessor and the regulators put on pensions firms has worked. We will continue with that pressure and, if necessary, increase it until this sorry episode is at an end.

Mr. John Whittingdale: I welcome this opportunity to debate the issue of pensions mis-selling. The Economic Secretary was right to say that it is an important issue which has affected thousands of people. However, I have to say that I regret that the hon. Lady has continued the practice of her predecessor in concentrating on attacking those firms and individuals that were guilty of mis-selling, but failing to acknowledge that the vast majority of those working in the financial services industry do an excellent job for their clients in an honest and conscientious way.
I would have hoped that the Economic Secretary would take more seriously the real concerns of those in the industry about the next phase of the review. It is perhaps more understandable that the hon. Lady chose to say nothing about the Government's actions towards those trying to provide for their retirement, as on any account the Government's record is a disgrace.

Mr. Brian Jenkins: I am sitting in the Chamber taking lectures from the hon. Gentleman, but would he like to comment on the fact—I am referring to a reply in Hansard—that the Department of Health and Social Security ran a campaign about "breaking the chains" which cost taxpayers £1.2 million? It was intended to lead people in a new direction. Many in the industry feel aggrieved that they have not received an apology from the previous Government.

Mr. Whittingdale: I am glad that the hon. Gentleman raises that point because it allows me to say something about the background to the issue that we are debating, and in particular to point out that it was not the Social Security Act 1986 that was responsible for the mis-selling that occurred. Instead, responsibility rests with the actions of some of those in the industry who abused the opportunities that the Act provided.
The 1986 Act created personal pensions. For the first time, it removed the division between those who had the advantage of their own occupational scheme and those who did not. For those who were self-employed, for those who worked for employers who did not offer their own scheme and for those who moved frequently between


employers, the Act gave an opportunity to have a pension scheme personal to them and fully portable as they moved from job to job. Not only did it give freedom and choice in pension provision to many who did not have it before, but for millions it meant that they are or will be better off in their retirement.
I entirely accept that for others, that was not the case. Mis-selling occurred as providers took advantage of the provisions of the 1986 Act to persuade investors to opt out of their existing occupational scheme or not to join one when it was clear that that was against their financial interests. In doing so, those providers were clearly acting in breach of the rules of the regulatory organisations of the time. The central principles of those rules were the requirements to ensure that the product was suitable to an investor's circumstances and that the advice was in his or her best interests. In too many instances, those principles were clearly breached.
As soon as it was apparent that that was the position, action was taken. The review announced in 1993 by the Securities and Investments Board was unprecedented. When the evidence showed that there had been systematic mis-selling, the SIB issued guidance which established the priority groups and which required its members to seek out all cases within them.

Mr. David Kidney: The hon. Gentleman has referred to the rules that were breached in many instances. Will he take the opportunity to distance himself from the letter that we have all had from the IFA Association, which states that the rules were imposed retrospectively?

Mr. Whittingdale: I want to come on to the concerns of the Independent Financial Advisers Association, which I think are entirely genuine. Where mis-selling occurred, the IFAs are the first people who want to see that situation tackled and for redress to be given.
I return to the background to the issue that we are debating. I accept that initial progress was too slow. The information required was detailed and complex, making the process far too lengthy and bureaucratic. However, that, too, was addressed by the issue, in 1996, of simplified guidelines by the SIB to speed up the process. They were backed up by a statement of policy by the new Personal Investment Authority.
It is not true, as I think the Economic Secretary implied, that the Government stood by. Indeed, I would like to pay tribute to the work of Angela Knight, who when she was Economic Secretary, was assiduous in pursuing these matters and putting pressure on the industry to act. The only change since then has been the volume at which the words of the Economic Secretary have been delivered. All the regulatory mechanisms and sanctions that are being applied to the industry were put in place by the previous Government. The Economic Secretary is pursuing, as did her predecessor, exactly the same policy towards this issue as was established under the Conservative Government. The requirements on the industry to put right cases of mis-selling were laid down under the previous Conservative Government and the regulators were ensuring that they were put into practice.
Of course the Government are right to bring public pressure to bear, but they should acknowledge that the progress that has been made is as much, if not more, to do with measures taken before the general election as it

is the result of accusations and threats made at press conferences by the Economic Secretary and her predecessor.

Mr. Greenway: If I catch your eye, Mr. Deputy Speaker, I will expand on this declaration of interest. Many hon. Members know that I am the chairman of the Federation of Insurance and Investment Intermediary Associations, which includes the IFA Association. The federation is not saying that there should not be remedies under phase 2. Central to my hon. Friend's point is that the 1994 assessment of what should be done in the review on phase 1, which has been replicated in phase 2, is the cause of the difficulty. My hon. Friend is making the valid point that the previous Government took action. The IFA Association's quibble is not with this Government and the need for action, but with whether those 1994 rules should be applied without being reconsidered.

Mr. Whittingdale: My hon. Friend is absolutely right. He has considerable knowledge and expertise on this matter, and I hope, Mr. Deputy Speaker, that he will be successful in catching your eye later in the debate.
My hon. Friend mentioned IFAs and I turn now to phase 2 of the review, which is about to start. While the bullying and the intimidatory tactics of the previous Economic Secretary may not have been entirely necessary to achieve progress under phase 1, they are wholly inappropriate and unjustified for phase 2. The issues are much less clear cut and mainly concern younger people who are several years away from retirement, and we are considering advice that was given at a time when standards and market conditions were very different.
The burden of the phase 2 review is likely to be crippling for many small firms, but its justification is far less obvious. Under phase 2, advisers are required to seek out claims by writing to clients in envelopes that say on the outside, "Are you owed?" If investors request a review, it has to be conducted not according to the market conditions prevailing at the time, but according to the conditions of today's market which are vastly different.
In the 10 years since many of the transfers took place, annuity rates have fallen dramatically. The result is that those who took advice to transfer accrued benefits into a personal pension in 1988 today require 37 per cent. more in their retirement fund to provide the same pension. Nobody could have foreseen such a change, but under the rules, advisers are expected to provide compensation for its effects, although it is by no means clear that investors will ultimately suffer any losses as a result since investment conditions may well have swung back by the time that investors eventually retire.

Mrs. Jacqui Lait: rose—

Mr. Butterfill: rose—

Mr. Whittingdale: I am spoiled for choice. I give way to my hon. Friend the Member for Beckenham (Mrs. Lait).

Mrs. Lait: Does my hon. Friend agree that today's statement by the Chancellor and the increased public borrowing of which he spoke will lead to an increase in gilt interest rates and hence raise annuities again?

Mr. Whittingdale: I admire my hon. Friend's ability to find a silver lining in the cloud of the Chancellor's statement. In that at least I hope that she is correct.
As I said, nobody could have foreseen the changes that have occurred. It is hardly any wonder that the industry is beginning to view the review as not about providing compensation where mis-selling has occurred, but about ensuring that no one loses any money under any circumstances.
Advisers are also being judged retrospectively on today's standards. In the vast majority of cases, advisers may well have made clear to their clients the potential risk involved, but 10 years ago, there was not the stringent requirement that now exists to keep records of advice given. The Economic Secretary said in her speech that the industry was misleading people by claiming that it was not required to keep proper records, but many of the IFAs that are now being criticised for not keeping records were at the time subject to several inspections by the regulatory organisations, and at no point did the regulators make any comment about the lack of records. Yet the burden of proof will now be placed on the advisers to show that they are not guilty of mis-selling rather than the reverse.
If phase 2 proceeds as intended, it will offend natural justice and lead to hundreds of long-standing and reputable firms going out of business. Unlike the big providers, they do not have policyholders or reserves to meet the costs of the review, let alone any compensation that might have to be paid.
It has been estimated that to assess the loss on any single case will cost about £1,000. The average cost for a firm of completing phase 2 is likely to be about £600,000, but the average annual turnover of an IFA firm is around £200,000—a third of that amount. On top of that, IFAs are now experiencing substantial increases in the cost of professional indemnity insurance, as a direct result of the potentially horrendous liabilities that they may face under phase 2.
The pensions advisers support systems scheme put together by the providers is welcome, but it deals only with the problems of phase 1 and it will not be enough to stop many small IFAs being tipped into bankruptcy if phase 2 of the review goes ahead under the present rules. Many of those firms, in the high streets of towns and villages across the country, have been providing sound and sensible advice to their clients over many years. They have never been found guilty of any kind of mis-selling and they are as anxious as anyone in the House for there to be redress for anyone who has been genuinely wronged.
However, as a member of one such typical small firm in my constituency said to me:
We are being judged as guilty by everyone including the press before we have had a chance to prove our innocence and in any proper court of law we would not be subjected to the rules and regulations that we are in this current environment.
He went on to say that
my fear is that there is a hidden agenda by this Government to actually wipe out the whole of the Independent Financial Market".
Such concerns appear all too real when one hears the belligerent noises made by Treasury Ministers. Statements such as the press release issued by the right hon. Member for Airdrie and Shotts (Mrs. Liddell), headed:
Helen Liddell has IFAs in her sights",
are not helpful. Instead, they seem to confirm the industry's worst fears and undermine the public's confidence in the financial services industry.
I therefore appeal to the Government and the regulators to listen to the industry and work with it rather than shout at it. The industry is asking not for phase 2 to be stopped, but for its concerns to be dealt with. I am worried when I hear from the IFA Association that it has been seeking to meet the Minister to discuss its concerns and work out an acceptable solution, and has not been able to achieve even that. Of course we want proper redress for those who are entitled to it, but we also want a viable, successful financial services industry.
I turn now to the actions of the Government, who are themselves guilty of robbing pensioners of thousands of pounds. In the 18 months during which the Government have been in office, they have launched an unprecedented attack on those seeking to provide for their retirement and on savers generally. Within a few weeks of the election, the Chancellor introduced a pension tax that will cost pension funds over £5 billion a year. As a result, more than 10 million people will have to pay more into their pension schemes or else find that they receive less than they had planned when they retire.
Of course, the Government introduced that measure by stealth. They hoped that nobody would notice that they had been fleeced until many years later when they came to retire. Those are double standards of the worst kind. Millions of pounds are being devoted to an advertising campaign to alert investors to phase 2 of the pensions review, but investors are being deliberately keep in the dark about the fact that the Government have raided their pension schemes and cut the income that they can expect when they retire.
The full cost of the Government's pension tax is now becoming clear. The recent report of the trustees of the universities superannuation scheme estimates that the loss to the fund is approximately £70 million a year. That is not a possible loss; it does not depend on investment conditions or annuity rates; it represents a loss to the fund of about £500 each year for every beneficiary or future beneficiary of the scheme. There will be many more such trustees' reports to come.
On top of that, we now learn from the Daily Mail that the Chancellor may be planning a new stealth raid on our savings. In order to fill the black hole in his finances, he is considering restricting tax relief on pension contributions to the basic rate, hitting millions of higher rate taxpayers and providing a further disincentive to save. I ask the Economic Secretary to take this opportunity to make it clear that this report is untrue and to reassure investors that the tax relief at the higher rate will not be removed.

Mr. Hawkins: My hon. Friend has just been talking about double standards. Does he agree that the title of this debate ought to be "Government policy on pensions: mis-sold"?

Mr. Whittingdale: I entirely agree with my hon. Friend. People will think that while many of those in the industry might have been guilty of mis-selling, in many ways what they have done pales in comparison with this Government's record in fleecing the pension funds of every single occupational pension scheme member.
If all this were not enough, the Government have also scrapped tax-exempt special savings accounts and personal equity plans, two of the most successful savings


schemes ever devised, and are to replace them with an inferior, unpopular and ill-conceived product that is already being rejected by the public and the industry alike.
While the Government are saying that they are attempting to persuade savers to invest in equities, there is a deafening silence about the much-vaunted stakeholder pensions. Nearly a year after the discussion document was published, we appear to be no nearer to an announcement. Indeed, according to today's Financial Times, the whole scheme has now been torn up by the Treasury which has gone back to the drawing board. It is hardly surprising that the whole pensions industry is now beginning to suffer from planning blight.
The cumulative effect of the relentless attack on savings has been, not surprisingly, to reduce the amount that people want to save. Eighteen months ago, when the Conservative Government were in office, the savings ratio stood at 10.3 per cent. The latest figures show a fall of nearly 25 per cent., far steeper than was predicted in the Government's own Red Book. That is bad for investors, bad for business and bad for the country.
The mis-selling of personal pensions was a scandal that should be put right, but when it comes to defrauding those who are seeking to make provision for their retirement, the real offenders are the Government. Theirs is the real scandal, and it is they who should be providing redress.

Mr. Jon Trickett: I thank the House authorities for arranging this important debate on a subject that affects the lives of very many people, and I hope to be able to correct some of the false impressions given by the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale).
Britain is justifiably proud of the size and strength of its financial sector. In this sphere, it can truly be said that Britain remains a world-class player. We can boast about the size of the sector and the excellence of the services that it provides. The phrase "City of London", which denotes the financial services sector in the United Kingdom, has also always been regarded as coterminous with the highest standards of moral rectitude. Sadly, a substantial part of the sector fell significantly below the standards to which it ought to aspire in the matter of personal pension mis-selling.
The sales forces of some of the most prestigious names in the City misled huge numbers of people. Furthermore, even when the scale of the mis-selling of personal pensions became evident to everyone, the same companies proceeded to drag their feet. They failed to meet almost every deadline, even those deadlines that had been agreed by the industry itself. What is more, they were aided and abetted by the Tories.
In government, the Tories had created the statutory regime that allowed the mis-selling to take place and then proceeded to prevaricate themselves, which allowed the issue to drag on for years. When Labour took office in May last year, only 2 per cent. of the pensioners who had been identified as having been mis-sold pensions had received compensation. That is the scale of the Tories' indolence or, worse still, complicity in the process.
It is to the eternal credit of this Government that they acted with determination and speed to bring a resolution to the scandal. I congratulate my hon. Friend the

Economic Secretary on continuing to pursue the matter with energy and vigour. She will clearly need all that energy and vigour because, to judge from my case load and that of many hon. Members to whom I have spoken, it seems that many personal pensions companies will, I am afraid, continue to drag their feet and prevaricate for a long time.
I represent the former mining seat of Hemsworth. I wish to inform the House precisely how the pensions industry operated in the coalfields, especially the Yorkshire coalfield. Its record has been scandalous. The mis-selling of personal pensions was at its height at precisely the time when the coal mining industry was suffering an industrial cataclysm. For reasons that are known and which have been debated many times in the House, the coal mining industry was decimated. That was a great economic error but, in human terms, it represented a personal tragedy for thousands and thousands of families.
In my constituency alone, nearly 10,000 men lost their jobs in a matter of a few years. It was obvious that few miners in the communities that I represent would have immediate access to a new job. Many of the older men knew that they would probably never work again. Indeed, I am aware of the fact—it is more than anecdotal evidence—that many of the older men were told by the jobcentres and by the very civil servants who were meant to be finding them work that they would never work again.
The men had two assets. First, most of them were in receipt of a redundancy payment in the order of £20,000, or perhaps a little more. Secondly, they frequently had pension funds in the miners' pension scheme. However, as we know, the MPS has a rule whereby a pension does not commence until the pension-holder attains the age of 65.
The miners, their families and their communities saw the pit closures as a great tragedy, but the pension companies saw things a little differently. They saw redundant miners as a marketing opportunity. It does not take a mathematical genius to calculate that, in my constituency alone, 10,000 redundancy payments at £20,000 a piece resulted in a very large potential market of around £200 million, in addition to the funds already in the pension scheme.
The pension companies marketed their products hard. Many thousands of people in my constituency and elsewhere in the coalfields were sold inappropriate products. Miners had been told that society would be unable to find them another job, and now their only assets—their pensions and their redundancy moneys—were placed in jeopardy by some of the most prestigious household names in the country. That is a great scandal, but behind that scandal lies an even greater one, and that is the mechanism that the pension companies utilised to sell—or mis-sell—their personal pension schemes in the former mining communities. I shall describe the process to make sure that it is on the record.
It was quickly apparent to the pension companies that such communities are tightly knit and that there was little point in dispatching their conventional sales forces, with their gold cards, designer clothes, yuppie telephones and so on, to those areas. Instead, ex-miners were recruited by the pension companies, given rapid and inadequate training, and then sent out into their own villages and townships to prey on their former mates. Conservative Members are nodding their agreement.
The training that those people received was wholly inadequate. Those ex-miner trainees were supposed to pass exams before they went out selling, but I am aware, and can prove, that there was widespread cheating, aided and abetted by the companies, in that process. I have been told of the complicity of senior regional managers of nationally known and supposedly reputable pension companies in assisting former miners to complete exams so that they could go on the road to sell, or mis-sell, pensions to their former mates.
Such regional managers had been given sales targets by people higher up in the organisations. They considered the redundancies to be not a great human tragedy unfolding before this nation, but a golden opportunity.

Mr. Willis: What the hon. Gentleman is describing is not only a personal tragedy for the miners concerned, but an absolute insult to those communities, which no one would condone. Does he have evidence that independent financial advisers were working in those communities and mis-selling in the same way?

Mr. Trickett: I will come to the case of an independent financial adviser. It is clear to me that independent financial advisers were part of the mis-selling of pensions in the mining communities, but that was a different type of process from the one that I am describing.
The regional managers and the large companies, as well as the smaller companies, considered the redundancies to be not a great national tragedy, but a golden opportunity. They were prepared to close their eyes to such practices. As a consequence, ill-trained and inappropriately recruited former miners donned their Sunday-best suits and went back into their own communities to sell inadequate schemes, which they did not fully understand, to their neighbours, friends and former workmates. It is a great scandal that huge commissions were offered to that sales force to identify pension transfers from the miners' pension scheme.

Mr. Quentin Davies: The abuses that the hon. Gentleman is so vividly describing indeed took place, and he is absolutely right to say what he has said on that subject, but, in those circumstances, does not he think it quite extraordinary that those managers have kept their bonuses, those dishonest salesmen have kept their commission and his Government, as the Economic Secretary has told us, propose to do absolutely nothing about it? They intend that the full burden of compensation should be paid by innocent pension-holders.

Mr. Trickett: My point is that the culture of dishonesty, which is all that it can be described as, ran from top to bottom in those organisations. It is entirely inappropriate for the hon. Gentleman to say that the salesmen were dishonest. They were innocent dupes—ex-miners who were down a pit hacking coal and contributing to the wealth of this country one minute, and put into their Sunday suits and sent out with inadequate training the next. There was no dishonesty, other than the dishonesty of the pension fund managers.
Precisely the same process was in place in respect of the regional managers of the pension funds. I have spoken to some of them, and I understand the pressures that they

were placed under. A culture of greed, which was encouraged by the previous Tory Government, infiltrated the industry throughout and led to the most scandalous processes taking place.
I have recently assisted one of my constituents, who operated in exactly the manner that I have described. He was promised massive earnings by a national company, which it would not be prudent to name. He was given training, encouraged to cheat in his exams and then put back on to the streets and into his own communities. He failed to sell—I should say mis-sell—pensions in adequate numbers. The company then lent him money in lieu of wages and of commission that should have been earned, which was a further disgrace.
When I met my constituent, he was being threatened with court action by one of the largest companies in the financial services sector in Europe. It was proposing to take him to court to recover the so-called loans with which he had been provided as a substitute for wages and for commission that he had failed to realise because he was not competent to sell the goods that he had been employed to sell. That is a disgraceful episode.

Mr. Davies: Go on, name the company.

Mr. Deputy Speaker (Mr. Michael J. Martin): Order.

Mr. Trickett: I will not name the company, but I have given a clue, if the hon. Gentleman chooses to find it.
I then entered into correspondence, as hon. Members would expect, with the chief executive of the company, who is a public figure of some stature and whose company is a household name. Hon. Members might anticipate that such an individual would be ashamed of his company's behaviour. He was not, and he is not. The company wanted to recover all its so-called loan from my constituent. It used the interesting argument that it did not want to concede in my constituent's case, although it was accepted that he had been treated unfairly and badly, because of the precedent that that might create for others in the same position.
The logical deduction is that many people were put in the same position as my constituent. It is evident that the industry paid scant regard to the manner in which its products were sold in the coalfields and in the country at large. The high moral reputation of the financial services industry seems to have been little merited in relation to either its customers or even its own sales force.
Part of the industry is once again engaged in special pleading in respect of the second phase of the pensions review. I know that the Government will stand firm. On that issue, as on so many others, the Government will show that they stand on the side of the many, not just of the few.
I have no doubt that we will be remorseless in representing the consumer interest and that we will press on to phase 2. May I respectfully ask the Economic Secretary to find time to address the issue of the many pension-holders who have had their cases reviewed, but have not yet received compensation? They are having to wait inordinately long periods for their compensation to be paid. The procedure is necessarily detailed—I understand that, as do my constituents—but it is in danger of being over-bureaucratic and cumbersome.
I am particularly concerned about those pensionholders who go through the whole process only to find that the agency which mis-sold the pension is no longer in a financial position to pay compensation. I am aware of one such company. It is still trading and acknowledges that it should be paying a series of pensioners compensation for mis-sold pensions but, over the past few months, it has deliberately cancelled its indemnity insurance cover, thereby making itself unable to pay compensation. That means that my constituents will have to wait further inordinate periods to receive what is rightfully theirs. They are the poorest in a community drowning in poverty.
There is an investors' compensation scheme, which acts as a safety net in such cases. Unfortunately, it has been my experience that the scheme is operating far too slowly and, moreover, leaves too much responsibility in the hands of individual pensioners, who frequently face mighty financial institutions.
Today, I received from the investors' compensation scheme a further letter about a particular case. We are now back in a loop that we have already been around three times in relation to my constituent. I wonder why the scheme cannot take action to address his problems. Will my hon. Friend the Economic Secretary consider reviewing the scheme's operation, with a view to expediting matters for those unfortunate individuals whose situation requires them to have recourse to it?

Mr. John MacGregor: I shall begin by declaring an interest. First, I was a non-executive director of London and Manchester and I have recently become a non-executive director of Friends Provident. I joined the London and Manchester board early last year. The fines that were applied to both boards related to periods well before I was a non-executive director. As the Minister raised this matter, I want to assure her that I have been assiduous in trying to ensure that we deal with pensions mis-selling as quickly as possible. I want to make it clear that I am not defending the previous position.
I am pleased to say that I am a non-executive director, because I believe that it is important that people who have some knowledge of what is happening out there in the industry contribute to such debates. I was delighted to join London and Manchester, because I have had a lifelong interest in the encouragement of long-term savings, especially in relation to owner-occupation and the property-owning democracy. That is what brought me into politics. I want to see the widest possible extension of savings, and I am very much aware of the importance of savings for the younger generations if they are to have a happy retirement.
Savings are particularly relevant for lower income groups, at whom the Government were aiming their pension reforms. London and Manchester has concentrated on those groups. I was particularly keen to play a part in carrying that forward. Friends Provident has strong Quaker origins, and the Quaker influence is still very strong. And I agree with the Minister's remarks about customer care in such companies.
My second interest is as chairman of the House of Commons pension fund trustees. We do not have personal pensions, but we have free-standing additional voluntary

contributions. That experience gives me further insights into the responsibilities and some of the difficulties involved in these issues.
I want to make a balanced and positive contribution to the debate. I want to put my points to the Minister in a constructive spirit. I welcome her to her new post, and I congratulate her on it. She has a heavy responsibility to ensure that we get the balance right. That is what I want to try to explain in my contribution.
The starting point for all of us is the recognition that we need to encourage many more people to make long-term savings, particularly for their pensions. We all know that the state pension will be a smaller proportion of average earnings in 20 or 30 years' time. That is common ground between us: it is also the Government's view. We all want to encourage second pensions, and we all recognise the difficulties faced by low-income groups, people who frequently break careers or who never have a career. Encouraging long-term savings is one of the most important priorities for the Government.
I was going to say that we are looking forward to hearing what the Government have to say about building on the second pension, whether compulsory or not. I was also going to say that, when the proposals are presented, the help that the industry can give the Government will be important. However, I noted the headline story in today's Financial Times, which suggests that the Government have dropped their plans for sweeping pension reforms.

Ms Hewitt1: indicated dissent.

Mr. MacGregor: I hope therefore that, in her wind-up speech, the Minister will tell us that that is untrue, and that she will make the position clear. If there is any question of the Government dropping their plans for substantial reform, the need to establish a regime that will encourage many more people to save on their own and will encourage companies to introduce these schemes will be all the more pressing.
The omens are not particularly good. The surveys that I have seen show that a substantial proportion of people, including young people, realise that the state pension will be far from sufficient when they retire. About 85 per cent. of people understand that, so that message has got through, which is good. When they are asked whether they are doing anything about it on their own initiative, only about 12 per cent. reply in the affirmative. There is a huge gap, and thus an enormous challenge.
Final salary schemes, which are the most attractive schemes, will decline as a proportion of company schemes, because companies, for a variety of reasons, are moving to money purchase schemes. It is important that we promote money purchase schemes with company contributions, and that we encourage people to take out personal pensions. That will be right for them in principle if the pattern of their working life is different from what it used to be, and if they change career several times. The introduction of personal pensions was entirely right in principle, and we must build on them and increase their role.
The report in today's Financial Times showed the complexity of these problems:
Members of the government admitted compulsion was 'dead' and that the review had shifted away from initiating low-cost, funded 'stakeholder' policies and towards modifying the regulatory


environment to encourage industry provision of such schemes. 'We've been impressed how fast the private sector and trade unions have set up low-cost stakeholder lookalikes,' said a minister.
Friends Provident was one of the first into this market, and is working with trade unions. That is a highly attractive way of tackling the problem. The report goes on:
'It's now a question of how we shape the market place and the Treasury is at the forefront of deciding this,' said another government member.
The hon. Lady may say that none of that is true, but if it is an indication of the Government's thinking, there needs to be strong co-operation between the Government and the industry to achieve the objectives we all seek.
I envisage two major problems. The first has been referred to already. The abolition of advance corporation tax and the reduction in the income of pension funds introduced by the Government last year will have a profound effect on the provision of pensions in the period ahead. Indeed, if there is a pension scandal, pension robbery or devaluation of benefits, the Government's action will, in the long run, be a stronger example of that than any of the pension mis-selling.
I have heard of companies that have already experienced the impact of these measures in their triennial valuations, because they considerably reduce the income stream. It is the income stream on which those valuations are based and from which the pensions eventually come. At the time, the Government argued that the valuation should be based on the capital of the funds, but we have seen in the past few months how fickle and dangerous that can be: it is the income stream that is important in the long term. The change that the Government made last year was a retrograde step.

Ms Gisela Stuart: The right hon. Gentleman referred to pension robberies. Will he comment on the value of the basic state pension in 1976? Given what happened to SERPS during the Conservative regime, the state pension has been reduced to such an extent that someone retiring in 2028 will draw a SERPS plus basic state pension that is less than the value of the basic state pension was when the previous Labour Government left office.

Mr. MacGregor: The present Government have exactly the same policy, because of the difficulties of funding a state scheme. Hence the importance of ensuring that we get the corporate and private sector position right.
I heard about the reports in the Daily Mail yesterday of possible further moves by the Government to reduce pension contributions if they reduce the tax relief on contributions to private sector schemes. I asked the Chancellor this afternoon to make it clear that the Government do not intend to take further action on pension funds and contributions. He muttered quickly that there were no such proposals, and then talked about bank windfall taxes, which had nothing to do with the point I was raising. I suspect that he may regret muttering under his breath, but I profoundly hope that there will be no further moves to attack pension funds. I should be grateful if the hon. Lady confirmed that in more detail.
The second major problem concerns pension regulations and the mis-selling. I do not condone the mis-selling, and in no way do I defend it. People were

taken out of occupational pension schemes—the NUM case is a good example—or, if they had the choice of an occupational pension scheme, they were persuaded to go for a personal pension without any company contribution. I do not condone that at all, and I recognise the need for compensation in all the relevant cases; but we must get the balance right. We must recognise the existence of many beneficiaries of the introduction of personal pensions, and its substantial contribution to the provision of pensions, improved living standards for many retired people, the encouragement of self-help and a reduction in what would otherwise be a much higher level of taxpayer-provided welfare benefits. The introduction of personal pensions is a positive development; it is the consequences of the mis-selling of a small proportion of the total that we must put right.

Mr. Andrew Love: According to the Financial Times, the latest estimate is that mis-selling will account for some £11 billion. How can the right hon. Gentleman describe that as a small proportion of the whole?

Mr. MacGregor: I shall come to the £11 billion later. My point is that, given the importance of personal pensions in the future and the need to attract many more people to them, the amount resulting from mis-selling will constitute a comparatively small part of the amount that must be raised. It should be remembered that the total value of the United Kingdom's pension fund industry— I know that that includes company pension schemes—is currently well over £600 billion.
Many companies were slow to embark on the pensions review, and did not recognise quite what enormous resources would be needed. That was clear to me when I first became involved. We must recognise that there will be a high cost—and here I refer not to compensation, but to complex administration.
The process is taking a long time, not just because potential beneficiaries do not always respond and organisations such as the national health service have, during the first stages, been slow to give details. It can take many hours of highly qualified work by those calculating the consequences of a single case of mis-selling to reach a conclusion. I have examined some cases myself. Qualified actuaries—including retired actuaries—often have to be brought in. I am very much aware of the effort expended by the company in which I was involved.
It is rather like the millennium and the computer industry, in that a whole new industry is being created in the short term to sort out the problems, with large salaries being paid. I make no complaint about that; I merely observe the phenomenon.
Other policy holders will often have to pay the cost. There is a balance to be struck there as well. As my hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) pointed out, those policy holders are innocent, and are looking forward to good pensions themselves. So we must exercise a sense of proportion in the future.
In the early stages, the regulatory bodies—especially the Securities and Investments Board—were slow to issue guidelines, and then kept changing them. To an extent they are still changing them, and that remains a problem


for many companies. I understand that different life companies have been influenced by differing guidelines that they have received from regulatory bodies, which is adding to the confusion and uncertainty.
Against that background, let me make a specific point to the Economic Secretary. Just when it is crucial for the Government to create an atmosphere that encourages people to take out pensions, they are in danger of doing the reverse. Vilifying the industry makes consumers unwilling to consider the product. It is no good the Government saying that people should take out more pensions; an industry is needed to sell the pensions and to give appropriate advice, and if that industry retreats into its shell, or large parts of it disappear, the whole cause is badly served.

Mr. Kidney: Will the right hon. Gentleman give way?

Mr. MacGregor: I am anxious to make progress, but I will give way once more.

Mr. Kidney: May I put the contrary view? How can the public have confidence in those who sell pensions until this whole unfortunate incident is put behind us? Does the right hon. Gentleman not agree that we need to crack on and finish the matter before there can be confidence in the industry?

Mr. MacGregor: That is precisely what I have been saying to the industry: that we must conclude the process as soon as possible. I think that that has almost happened with phase 1.
Let me make some positive suggestions. The first relates to phase 2. There are, I think, some issues to be revisited. As the hon. Member for Stafford (Mr. Kidney) implied, there is a danger that, if phase 2 lasts for a long time—it could well do so, given the way in which it is currently constructed—an image that is the opposite of what the Government want will persist for the next five years. Phase 2 is different from phase 1, in that it deals with different types of case and different types of person. It should not be subject to the heavy, costly, complex and time-consuming regime that affected phase 1.
There is a genuine difficulty, which needs to be resolved. Let me make two points. First, I think that it is worth looking again at the rebate-only cases. There cannot be much of a loss to individuals in such cases, because they made no extra contributions themselves. I have not had an opportunity to examine the losses in detail, but phase 2 involves many rebate-only cases; and I am not sure that, if they all had to be examined in detail and it was then found that the loss was de minimis, we would have achieved much of an objective.
Secondly—this was the point that I tried to make when I interrupted the Economic Secretary—we should look again at the assessment of loss. What should be considered are the conditions that obtained at the time the policy was taken out. Those conditions cannot be changed some years later. Let us suppose that I took out a life policy—as I have—and then found that we had moved into an era of low inflation and low interest rates. I would then receive a much smaller terminal bonus than I might have expected five years earlier, but that would be no reason for me to say that the policy had been mis-sold to me in the first place, or that I should be compensated for the fact that interest rates had fallen.
If the argument about loss is taken to extremes, the Government will start saying that the unit trust industry should be held responsible if at any time, when people cash in their unit trusts, they are worth less than they were two months or two years earlier. That is clearly absurd, but there is an element of it about the way in which loss has been calculated in relation to phase 2. My hon. Friend the Member for Maldon and East Chelmsford was quite right.
We now have low interest rates, low returns and low annuity rates. Let us suppose that a loss is being assessed now, 10 years after a policy was taken out. If the pension will not be paid for another 20 or 30 years—which, in many phase 2 cases, is quite likely—the person concerned is being compensated for a loss that may never actually happen, because the calculation was made at a particular time. It may be necessary to recalculate the whole thing two years later—because the programme is not finished— and it may then be found that the loss is no longer a loss. The Economic Secretary will have to address such problems.

Mr. Butterfill: Some cases were examined in 1995. It was discovered that those who had been sold the pensions were selling at a profit, in one instance a profit of £2,500. Because of changes in the market, however, that person is now shown as having suffered a £38,000 loss. Is that not ludicrous?

Mr. MacGregor: That is exactly the point that I am trying to make. There will have to be some way of dealing with the problem; otherwise there will be another scandal. It will be found that the whole matter was badly organised by the regulator, and by the Government.
Phase 1, of course, dealt with people who had retired or were close to retirement. In their case, the loss could be calculated, but that does not apply to most phase 2 cases.

Mr. Laurence Robertson: Does my right hon. Friend agree that, with personal pensions, as well as financial considerations, two other benefits are to be taken into account? First, they are completely portable, and secondly, they allow for a 25-year retirement age. Many occupational pensions would not have those benefits. Should not that be taken into account when assessing their value?

Mr. MacGregor: Those are certainly some of the benefits of personal pensions. That is why it is right to go on making it clear that they have a large part to play.
In the whole of this regime, we do need the certainty of a set of guidelines that are laid down at the start and adhered to throughout the process. One of the difficulties has been that they have changed throughout the process and that many of the providers and IFAs—independent financial advisers—were not aware of what the guidelines were when they were operating their marketing.

Mr. Love: Will the right hon. Gentleman give way?

Mr. MacGregor: I am sorry. I should go on.
We should avoid retrospective regulation; it is also important to ensure consistency throughout the whole regulatory system. If that is not done, my worry is this: there will be far fewer IFAs. The professional indemnity


loss business that is coming through shows what the marketplace thinks about that. IFAs will be constantly at risk, including from people whose career changes may be significant, which may lead them to try to exploit the whole regime to the disadvantage, unfairly, of an IFA. IFAs will not have the resources to ensure that they can meet all regulatory requirements in future. That is why it is important to have certainty and a clear system from now on for them.
It would be a serious tragedy if there were a substantial reduction in the IFA industry. Of course, there are some poor operators in the industry—we all know that—but there are many genuine people who give good advice throughout, and that advice is needed by many of the people who should be taking up pensions.
I saw this particularly at London and Manchester, whose home service industry goes out and gives advice to people who would not otherwise think of taking out long-term savings. Recent independent market research shows how much that service is valued. If it disappears, something important disappears.
Incidentally, there is a danger in moving to exclusively multi-tied IFAs. I hope that the Government are not contemplating that because it would lead to a considerable loss of independence.
The next consequence will be that companies, both providers and IFAs, will concentrate on execution-only. That is already happening with Marks and Spencer's, Scottish Widows and many others, and it is driving a coach and horses through the regime.
It looked as though the Government were going to encourage execution-only in the low-cost stakeholder pension that they were going to introduce. Supposing those execution-only schemes did not give as good pension outcomes as those that were done with advice. Who is then guilty of the pension mis-selling scandal? The people who would be guilty would be the Government who had insisted on exclusively execution-only. That again shows the importance of recognising that advice is desirable; and that it comes at a cost, inevitably.
In many cases, the fact-finds that companies are undertaking through all their sales men will be counter-productive. They involve two long meetings and detailed reason-why letters. Often, it will simply be unprofitable to carry that process through. Why are the companies doing it? The answer is that they have to give themselves complete protection against any future, retrospective changes in the regulatory system. That, too, will lead to a diminution in the amount of pensions sold.
I recognise that the regulatory authorities—the Personal Investment Authority or Securities and Futures Authority, whichever it is—have a difficult job. I recognise that there has been mis-selling and we must avoid that, but we must ensure that we get the balance of the regime and phase 2 right because, at the moment, the risk is that the pendulum will swing too far in the other direction—which will be in no one's interests, least of all the Government's. The Government, like me, desire to see many more occupational pension schemes taken out and much more long-term saving. That is our objective, and we must ensure that we do not diminish or destroy it by an over burdensome and badly worked out regulatory regime.

Ms Gisela Stuart: I welcome this opportunity to introduce to the debate the need for personal pensions and how that fits in with the whole picture of personal pension misselling. The Ross report, which was commissioned by the Labour Government, makes it clear that there is a future for personal pensions, and recognises that it will always be true that personal pensions are not suitable for everyone and that the state continues to have a role. It recognises the continuing need for private-public partnerships in this sector, but also makes it clear that we must learn from the past; we must learn from the mistakes.
I tried to make the point in an intervention that what the previous Government had done to SERPS made it clear that some Government provisions were not free from Government interference. Therefore, if we want to encourage the public at large to provide for their retirement with confidence, we need far more robust vehicles in its place.
Pensions mis-selling—how did it come about? It started with encouraging people to opt out of SERPS. With hindsight, and in the light of actuarial assessment, the previous Government were somewhat too generous, certainly in the first 10 years, in the SERPS opt-out arrangements, which may have encouraged people to opt out who should not have opted out.
Similarly, when, in 1988, it was no longer compulsory to be part of an occupational pension scheme, that in many ways opened the floodgates for personal pension mis-selling. There was an argument that early leavers from occupational pensions paid too heavily, so that option should have been given, but the situation has been remedied to quite an extent.
What have we now? If my information is right, and I have no reason to doubt it, in this quarter, for the first time, the number of personal pensions being taken out has dipped, which is serious. Some people say that it is a sort of planning blight. Individuals are looking at where the Government are going with individual savings accounts and therefore holding back, but it shows a serious crisis of confidence in the insurance industry's performance.
Whose fault is mis-selling? It is interesting that the debate goes from greedy salesmen to insufficiently trained salesmen to the previous Government's hasty push of people into personal pensions, but no one suggests that it is the fault of policyholders; yet, when we look at who should pay for it, we ask the policyholders of the large companies to do so. The people who have the least fault in this fiasco are being asked to pay the bill. It is somewhat bizarre.
If an insurance company is owned by its shareholders, it is clear that, provided there is no with-profits policy in the company, the shareholders are involved in this. With mutuals, of course, it is the policyholders who have to pick up the whole bill, but one company is in a difficult position: the Prudential. It is a company with shareholders which also issues with-profit policies. That means that the return depends to some extent on the profits that are made by the company.
The Prudential is also the worst offender in terms of pension mis-selling. Last July, it had to increase its estimate of the cost of mis-selling from £450 million to £1.1 billion. It was suggested that, in the light of the whole size of the pension industry, that was not


significant. I still suggest that for one company to run up a liability from mis-selling of £1.1 billion is extraordinary. Sir Peter Davis told the Treasury Select Committee that the mis-selling bill would be set against an estimated £12 billion surplus capital on its long-term life insurance fund. Of that £12 billion, about half is needed to meet policyholders' reasonable expectations.
In my innocence, I used to assume that, if I took out a with-profits policy with an insurance company, I got the profits made by that company. In fact, I get what that company's actuary deems to have been my reasonable expectation. It is a case of losing every which way. The figure involved for the Prudential was £12 billion. If one argues how much of that does not have to be met by reasonable expectations, the agreed figure is probably about £7 billion.
All that is rather quaintly called orphan assets. It is not clear who owns the orphan assets. This is beginning to remind me of a debate that was held in the late 1980s and early 1990s about who owned the surplus in occupational pension funds. It was the issue of the surplus in occupational pension funds that got me into politics, and I am beginning to suspect that orphan funds will keep me here.
Who owns the assets? The Consumers Association argues that the assets should be treated as an exercise of demutualisation, and that they should be paid out to the current shareholders or policyholders. I am reluctant to do that, because the orphan funds have been built up over generations, and they would be paid out over only one generation of fundholders.
There is a strong argument for the shareholders having access to the orphan funds. I understand that the Department of Trade and Industry is currently holding discussions with companies about what should be done with the funds. Alternatively, it could be left to the courts. It was ultimately the courts that decided that the surplus in occupational pensions should be seen as deferred pay. In that way, the matter was resolved.
What could companies do with the extra assets? They could pay extra dividends, help to fund acquisitions or help to expand the business. What is unacceptable is that the funds have been used to pay for pensions mis-selling. We are again asking those who have no responsibility to foot the bill.
I saw another problem when reading a press release from the Prudential insurance company. It refers to the company's appointed actuary. I understand that the duty of a company actuary is to represent the interests of the policyholders. The current Prudential actuary, Peter Nowell, has significant shareholdings and share options with the company. I believe that, even if declared, his interest as a shareholder is contrary to the interests of the policyholders. I ask the Institute of Actuaries to look at that because it is unsatisfactory.
Where do we go now? One of the largest and most respected companies is and continues to be one of the worst offenders. We have the unresolved situation of orphan funds being used to pay for the mis-selling, which is inappropriate. It is obvious that we need better and clearer information. We can look for benchmarking. If we look to see whether the insurance industry has learnt anything, the evidence is not encouraging.
A total of 1 million free-standing additional voluntary contributions have been sold, with an investment of about £4.5 billion. Recent newspaper reports suggest that we

may be looking at compensation claims of up to £675 million, affecting some 50,000 to 70,000 people. How did free-standing AVCs come about? There were people in occupational pension schemes who could have paid AVCs into their own schemes, but who were encouraged to look at free-standing ones. It was argued that free-standing AVCs were preferable to company AVCs because of their portability, wide investment choices and privacy. They were also said to be convenient for people who move jobs.
In October 1998, Bacon and Woodrow said that the advantages of free-standing AVCs over in-house AVCs were "largely illusory". Something that was never mentioned on free-standing AVCs was that the salesman received commission. That was an unmentioned major advantage.
The major players in the selling of free-standing AVCs were Allied Dunbar, Pearl and Prudential. It was said earlier that companies making home visits may be thought to give better and more appropriate advice. That fact does not seem to be borne out if we look at the companies involved in free-standing AVCs. The companies that may be most implicated in selling inappropriate free-standing AVCs may be some of those companies making home visits.
Free-standing AVCs are not suitable for many people. For example, schemes such as those for the armed forces have high accrual rates, and those in the pension schemes quickly run up against Treasury limits. The industry feels that the area where one might find most mis-selling is where the trustees of a pension scheme have arrangements with a company to supply AVCs on special terms but the salesman does not pass on those special terms. The individual involved may have heard the name of a company and thought that it was a good deal without looking at the small print. I am not suggesting that the inappropriate sale of free-standing AVCs in any way comes close to pension mis-selling, but it is a clear indicator that the industry is not listening or learning.
The average return on an in-house AVC is 10 to 15 per cent. higher than for a free-standing AVC. Over 10 years, we could be talking about the equivalent of one year's premiums. So not only are the theoretical advantages largely illusory, but the financial returns do not come up to scratch. Any person considering free-standing AVCs in the future should be provided with clear information about how they compare with in-house AVCs. The trustees of occupational pension schemes could pay more attention to that issue, and provide clearer advice.
We are told that the industry is learning, that it is becoming more transparent and open. That has to happen if it is to deal with this. However, this week I saw a statement on personal pension PEPs from NPI. I compared it with a statement issued six months ago. The earlier statement was clear—it showed what was paid in, the current value and how the investment was performing. In fact, the returns on the policy involved meant that it was now worth less than the amount that had been paid in over 18 months.
Surprise, surprise, over the six months, the statement format had been changed. The categories and boxes had changed, and it took a great deal of leafing through to work out that the value had dropped. If we want to educate people so that they can make informed choices, we must be up front.
One of the biggest illusions about pensions is that there is a risk-free pension investment. Whether it is the Government, private industry or whatever, pensions involve risk. Unless we give people appropriate information, which we are not doing now, they cannot make choices on risk. The industry is still hiding facts from policyholders.
The Association of British Insurers came to talk to a group of Members of Parliament on occupational pension schemes. I questioned one of the representatives about the Which? report which had been published a week before. That report looked at 80 personal pensions, but found none of them satisfactory and would not recommend any of them. I asked the insurance industry for its response. I was told that the Which? criteria are phoney, and that the report made bizarre statements, such as that pensions would be a bad buy if. cashed in within three years. I became angry, because it was on the very day that the Financial Times had run a huge article stating that 60 per cent. of personal pensions are cashed in within the first three years. Industry representatives therefore came to Parliament to talk to hon. Members about occupational pensions, and thought either that we do not read newspapers or that, if we do read them, we cannot match what we read with what we are being told. It shows the industry's unwillingness to be honest. Unless and until the industry is honest, there will be no faith in it.
Some pension companies have a worse track record than others in the number of policies issued for which payments are not up to date. Although I should not say that there is a direct relationship between track records on payments and the quality of advice given, it is interesting to note that Britannic Assurance, Old Mutual, Royal and Sun Alliance, Albany Life and United Assurance have a particularly high withdrawal rate in the first few years, because people stop paying in. Perhaps such high rates show that personal pensions were not the right policies for those people.
I very much hope that the Government's individual savings accounts will be a vehicle that allows people to build up assets. It has been interesting to see Opposition Members shake their heads and reject ISAs before the public have had a chance to give their verdict on them. Nevertheless, Radio 4 is running a wonderful competition to find a slogan to sell ISAs, and I should tell the House that the slogan "There is nothing nicer than a Government ISA" has been banned.
Where do we go from here? I think that it will increasingly be recognised that there will continue to be a public-private relationship in pension provision, and that the insurance industry has a significant part to play in it. It is no good the insurance industry continually assuring us that people trust their personal adviser but mistrust the industry. Such a statement tells me only that personal advisers individually are doing a good selling job. I think that people are right to mistrust the insurance industry.
There must be accountability and openness for people trying to build a personal pension. There must be a stage at which people of any age can ask, "How much have I built up? Will it pay for my old age? What are the likely returns?"
People must also be aware that investments are never safe, and that we take risks. However, the current system does not allow us to take risks. As there is an interesting

selection of trustees of the parliamentary pension fund in the Chamber, I shall use myself as an example. Before deciding whether I should put everything into the parliamentary pension fund, I should know whether I will be re-elected. Therefore, in about three years, I will know what I should have done—which is clearly an unsatisfactory situation.
I welcome the Government's continued insistence on dealing with pensions mis-selling. However, some of the industry is still in denial and is not recognising its responsibility. Moreover, as events of the past few years have shown, the industry tries always to be one step ahead and just that little bit cleverer than everyone else. It must realise that it has to work within a very robust framework, which I hope the Government will create.

Dr. Vincent Cable: It is somewhat intimidating to speak after two of the House's leading experts on pensions—the right hon. Member for South Norfolk (Mr. MacGregor) and the hon. Member for Birmingham, Edgbaston (Ms Stuart)—both of whom spoke eminently good sense in a non-doctrinal manner, leaving the rest of us with a rather reduced amount to say.
I should like to pursue the "who-who" question of who benefited from pensions mis-selling and who is now paying for it. It has been estimated that about £11 billion will have to be paid in compensation for pensions mis-selling, and it would be a useful exercise to trace where that £11 billion might have gone.
Four categories of people or institutions benefited from pensions mis-selling, the first of which—as the hon. Member for Grantham and Stamford (Mr. Davies) said in a couple of interventions—was composed of salesmen and executives. They benefited from mis-selling, but have fled the scene. Moreover, under the current regulation system, they were not liable for those transactions. They cannot be traced, and carry no personal liability for events.
The second set of beneficiaries comprises the companies, or some of them, that sold the pensions. They benefited from enhanced earnings, and therefore improved share prices and improved dividends. Nevertheless, there remains the fundamental question—which the hon. Member for Edgbaston pinpointed at the beginning of her speech—of where within companies the benefits accrued. Did they accrue to shareholders, or to current policyholders? Moreover, how should costs now be spread between those two groups? I shall return in a moment to the latter point.
Other groups of beneficiaries of pensions mis-selling have not been mentioned. One major group were employers generally. As employers did not have to make contributions, companies earned 5 to 12 per cent.—a large sum. Strangely, although we attach great stigma to those who gave bad or inadequate advice, it has never been suggested that employers in either the private or public sector were reprehensible for failing to warn employees of the cost of not maintaining their occupational pension scheme.
A fourth set of beneficiaries comprises occupational pensioners themselves. They have benefited from the fact that transfers out of occupational schemes were often made on very disadvantageous terms. Everyone with an occupational pension is therefore better off because of pensions mis-selling. They may not be aware of that


benefit or feel a sense of guilt about it, and it is almost certainly impossible to trace them, but great income redistribution among pensioners has been occurring, for which there is no account.
The problem is that people in several of those categories can no longer be traced, so that the £11 billion cost will have to be paid by specific groups that can be identified and targeted. Although it is absolutely right that the Government should have aggressively pursued the compensation issue, and that pensioners should be compensated promptly when possible, as several hon. Members have already said, two specific categories have been forced to carry a disproportionate share of the costs.
One of those categories is independent financial advisers. Although I do not want to labour the point—my hon. Friend the Member for Harrogate and Knaresborough (Mr. Willis) has the largest number of IFAs of any constituency and will speak later in the debate about that issue, which has already been clearly stated—IFAs are, in some but not necessarily all cases, being punished not for mis-selling but for lack of foresight, which is the crucial distinction. The only appropriate basis for compensation would be what an occupational pension scheme would have produced for the pensioner when the private pension was sold. That principle of compensation is not being observed.
As the hon. Member for Edgbaston eloquently said, the other category of people with whom we are concerned is current policyholders. Ministers have said that, as a matter of principle, within companies, shareholders should be carrying the cost burden of pensions mis-selling. However, it is not clear how the matter is being pursued, or whether the burden is being carried appropriately. It would be helpful if the Minister dealt with the matter in his reply.
I do not want unduly to delay the House, but I conclude with a couple of forward-looking conclusions. Although it is easy to be wise and virtuous in hindsight, the key issue for us is to determine what lessons we have learnt from the whole sorry escapade.
The first lesson should be the danger of dogma, and that a "one size fits all" approach to pensions was not right. Although personal pensions—which many of us have—were a good advance, and are appropriate for those who are occupationally mobile, they do not fit everyone, just as owner-occupation is not the only style of housing. I hope that we, and especially the previous Government, have learnt a lesson about such an approach.

Mr. Quentin Davies: Before the hon. Gentleman leaves the first conclusion, will he say whether he agrees that it suggests that, in pensions, CAT marking is no substitute for advice?

Dr. Cable: The hon. Gentleman is right. CAT marking creates an expectation, at least in some people's minds, that the Government stand behind a financial product. In 10 or 15 years, perhaps there will be people who believe that they have been sold products that had an implicit Government guarantee. We can all appreciate the dangers of that.
The hon. Member for Grantham and Stamford has led me to my second and final comment. The conclusion that we should draw from the matter is that the principles underlying financial sector regulation are complicated.

It is very difficult to strike the right balance between over-regulation and under-regulation. We have been through a phase when, arguably, financial services have been under-regulated, and the only relevant principle was caveat emptor. That is a correct principle, as people should be careful when they are buying, but we know what happens when that principle is dominant—there is dishonesty, and people lack the information to operate properly in the financial services market.
Now, however, there is a danger of lurching in the opposite direction, with the system becoming over-regulated so that products are priced out of the market, and providers do not offer new products. We have to get the balance right. That is why it is absolutely crucial to have legislation as soon as possible on financial services regulation. That will help us to understand whether the right lessons have been learnt and the right balance struck.

Mr. David Kidney: As the hon. Member for Twickenham (Dr. Cable) said, we have heard a number of constructive speeches that have drawn on the lessons of the past and sought to apply them to the present and the future. Today's debate is particularly well timed as the Government are about to embark on some enormous policy changes. The first, which has been alluded to several times today, is the long-awaited Green Paper on pensions, setting out the next generation of pension policy for Britain. We are all looking forward to that important document, particularly to see whether it includes a new design of stakeholder pensions or citizenship pensions for those such as carers who are unable to make continuous contributions.
The second policy change, involving the new individual savings accounts or ISAs, starts next April and has also been mentioned in the debate. There are implications for ISAs as a result of pension mis-selling in the past.
The third development in the near future, to which the hon. Member for Twickenham referred at the end of his speech, is the draft legislation in respect of the Financial Services Authority. The hon. Gentleman looks forward to reading the Bill when it is published, but it will obviously be based on the draft Bill on which there is currently consultation.
Clearly, there are important lessons to be learned from how the regulations under the Financial Services Act 1986 operated when pensions were being mis-sold as to what should be in the next financial services and markets legislation.
Fourthly, I should mention almost as a footnote to the debate on pensions, that a draft Bill was published for consultation over the summer on pension sharing between spouses when marriages break down and how existing pensions should be split.
For all those reasons the timing of the debate is most apposite. However, for the Treasury Select Committee on which I am pleased to serve, the timing of the debate is slightly awry. As hon. Members will see from the Order Paper, although the minutes of evidence from hearings held over the summer are available to inform today's debate, the Select Committee report has not yet been published. Perhaps hon. Members will take it as a plug that the report will be produced very shortly. I hasten to


add that what I say now is entirely my own view and not the view of the Treasury Select Committee or the contents of its report.
The value of the debate lies not in the apportionment of blame, although I am happy that many hon. Members accept that things went wrong and that there are lessons to be learnt. Rather it is to face up honestly to what went wrong and to identify the lessons to be learnt so that we can avoid making the same mistakes again and anticipate offshoots of those mistakes arising in future.
It is helpful, however, to ask what went wrong and to say, as my hon. Friend the Economic Secretary to the Treasury did, that between 1988 and 1994 some 5 million personal pensions were sold in Britain. Astonishingly, more than 2 million of them need to be reviewed for the possibility of mis-selling.
What is meant by mis-selling? According to current regulations, three criteria have to apply. First, did the seller breach a regulation requirement at the time of the transaction? In other words, was there a compliance fault? Secondly, has the buyer suffered a loss? Thirdly, was that loss caused by the seller's compliance fault? If the answer to all those questions is yes, it can be said that the pension has been mis-sold.
So how did buyers lose out? Overwhelmingly, as the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) pointed out, the problem affected people who were persuaded to opt out or not to join or to transfer away from an occupational pension scheme, thereby usually losing the benefit of employers' contributions. The Financial Services Authority estimates that about 1.4 million personal pensions sold at that time will be found to have been mis-sold at a total cost to the financial service industry of a massive £11 billion, including the compensation paid to individuals who were mis-sold pensions and the administrative costs to the companies involved.
My hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) mentioned the actuaries Bacon and Woodrow, who estimated total costs of £22 billion, but most in the industry have difficulty with that estimate.
On the subject of what went wrong, one has to ask where the regulators were. As Opposition Members have said, there were regulators who visited premises and inspected paperwork, yet between 1988 and 1991 when mis-selling was at its height, we heard not a word from the regulators. When research disclosed that mis-selling was taking place on a huge scale across the entire country and the regulators announced that there would be action, which eventually comprised a review with a deadline of 1996, nearly everyone missed the deadline. Phase 1 of the review should have been completed by the end of December 1996, but at that time hardly anyone had started the process. It is now likely that phase 1 will be completed by the end of this year—two years late—and only then will phase 2 reviews start.
It is also important to recognise that the buyers who were mis-sold pensions were not the only ones affected, but that a great wrong was done to the reputation of Britain's financial services sector—in which we all take pride—as a world-beater. The industry has certainly been damaged. It is vital to complete the review, pay the compensation, learn the lessons and then to move on.
Although we are studiously avoiding apportioning blame, it is important in learning the lessons to see how the candidates for villain performed during the period in question. I intend to go through the cast of the Government of the day, the regulators, the insurance companies and their sales teams and the independent financial advisers.
It was clearly the policy of the Government of the day at the time of the Social Security Act 1986 to shift large numbers of people from the state earnings-related pension scheme to personal pensions. Apparently, there was the attraction of cost-free pensions paid for by national insurance rebates topped up in order to look as though they would represent a better deal than SERPS. In addition to the policy aim of persuading people to leave SERPS, there was an expensive advertising campaign to persuade people to do so. I refer the House to an excellent debate on the subject on 10 May 1995 when the present Minister of State for Social Security, my hon. Friend the Member for Southampton, Itchen (Mr. Denham), made an excellent speech that still reads well today and was extremely prescient. I should like to borrow one reference that he made to a memorable advertisement of the day, which showed someone tied up in chains upside down, representing their existing pension provision. The advertisement said of the new personal pensions:
employees will be able to choose their own Personal Pension scheme instead of staying in SERPS or an employer's pension scheme.
I accept that the Government of the day did not intend that people should be mis-sold personal pensions. It is a valid policy to want to persuade people to leave SERPS and take out personal pensions, but the unintended consequence was that lots of people were persuaded to leave occupational pension schemes in which they were well off and take out personal pensions instead.

Mr. Butterfill: I am sure that the hon. Gentleman recognises that there were occupational pension schemes in which people were not particularly well off or that were not suitable for them. It is wrong to suggest that everybody would have been better off remaining in an occupational scheme.

Mr. Kidney: I gladly accept that. When I was explaining how people made a loss I said that it was mostly those who left occupational schemes to which their employer had made a contribution. I accept that there were advantages for some people in having a personal pension rather than being in their employer's occupational scheme.
The final accusation against the Government of the day is that they set the regulatory framework that was intended to police the selling of pensions. The Financial Services Act 1986 established a mix of agencies and self-regulatory organisations—nine in all—which overlapped in some areas and left gaps in others on the policing of pension selling.
I shall now leave the charge list against the Government of the day and move on to the regulators. As Opposition Members have already said, every year the regulators made their checks of independent financial advisers and companies that were selling personal pensions, looking through their paperwork and making spot checks, and apparently found nothing to comment on, even though it


is clear that there was an immense amount of pension mis-selling at the time. That is a clear failure on the part of the regulators. They failed to work in concert, resulting in overlaps and gaps in consumer protection. One memorable occasion was in 1994 when the Securities and Investments Board eventually issued its guidance, leaving the SROs to promulgate it as rules. The SROs took a further six months to convert the guidance into rules to be enforced.

Mr. Greenway: I commend the hon. Gentleman on the accuracy of his trawl through what went wrong. I know of one firm regulated by the Investment Management Regulatory Organisation that was commended in the late 1980s and had its records described as exemplary. In the post-1994 regime, even though it took time to get going, the firm was fined £200,000 for the same records.

Mr. Kidney: I thank the hon. Gentleman for illustrating my point. I do not encourage him to take that argument too far, because the Government of the day established the regulators. When research disclosed that there was a problem and the regulators finally swung into action to stem the problem, they took years to bring matters to a conclusion—indeed, we have not yet seen the conclusion. I remind the hon. Member for Grantham and Stamford (Mr. Davies) that the Government of the day did not give the regulators the power to impose fines on individuals, such as directors of companies, found guilty of mis-selling pensions.
I turn now to insurance companies and their sales teams. Did an unhealthy dependence on commission payments from employers to employees contribute to the problem? Employers paid by results, paying only for sales achieved. There was pressure on employees to complete sales because their pay depended on it. How did the companies check what their sellers were doing in their name and on their behalf? Where were the internal checks on compliance?

Mr. Laurence Robertson: The hon. Gentleman describes the employment of salesmen in those days. He will recall that they were often not employed at all, but were self-employed. That was legal. Does that not suggest that the conditions under which pensions were sold in those days were very different from the conditions now?

Mr. Kidney: I accept that. One of my hon. Friends who is no longer in the Chamber earlier made a compelling point about redundant coal miners who were trained and sent out. I accept that some of them were employees and others were classed as self-employed for taxation purposes. They had so much difficulty earning their commission that they had loans to tide them over. That would have been an added pressure to make sales.
The last charge against the insurance companies is that they were slow to respond to the regulator's requirements for a review. In recent years whacking great fines have been imposed on the companies—not the directors, of course—for missing deadlines that were imposed on them.
The last group in the cast are the independent financial advisers. I am a fan of IFAs and have a great deal of sympathy for their difficulties. I have met IFAs in my constituency to talk about the phase 2 review. IFAs claim

that they are responsible for half the sales of personal pensions. Some of those pensions have been found to have been mis-sold. However, their share of mis-sold pensions is very modest compared with the insurance companies.
IFAs complained that there was not sufficiently detailed guidance in the rules when they made the sales, but they pride themselves on being—and advertise themselves as—the givers of best advice. It ill behoves them to complain if their advice sometimes fell below that standard.
Some IFAs have been slow to respond to the request for reviews of their cases. Had there not been such a delay in dealing with the reviews, they might have found that the cost of paying the compensation years earlier would have been less. I shall not go as far as my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), the former Economic Secretary to the Treasury, in calling them laggards, but I support the initiative that she took immediately on arriving in that post in calling in the major players in pensions mis-selling and laying it on the line to them that the Government intended to see the end of the episode.
What lessons can we learn from those experiences? I should like to take us through some of the same cast. The first lesson for the Government is to have clear policy objectives.
The Government of the day must also show sufficient competence in putting their policy objectives into effect, so as to avoid unwanted and unexpected side-effects. The third lesson for the Government is that it is their responsibility to set an effective regulatory framework for those objectives.
Curiously, the Financial Services Authority is carrying out much of its work of regulation under a set of contractual arrangements with the existing regulators, because the statutory backing for its activities is not yet in place. The first lesson for the regulator is that it must have the clear chief objective of protecting consumers. We shall return to that subject when we debate the Bill that will put the FSA on a statutory footing, but as things stand it is noticeable that several of its objectives appear to have equal standing, so there is a danger that priorities will become confused. The number one objective, at the top of the list, must be the protection of consumers.
Secondly, the FSA must have the flexibility to adjust to changing markets and new products. It is important that once the Government have legislated, there is sufficient ability, in terms of rule-making and secondary legislation, to move on from time to time and keep pace with the fast-developing market in financial services.
My third point for the regulators has already been commented upon several times. The authority needs the power to hit where it hurts, and to hit those whom it should hurt. Compensation must be ordered to be paid by those who should pay, such as companies whose shareholders stand their loss. The authority should also be able to impose fines on those responsible, including directors and controllers of the activities of individuals. It should be able to withdraw authorisation from those who repeatedly breach the regulatory requirements.
My final point in examining the lessons to be learnt by individual organisations is that the insurance companies need to review their policies on payment by commission. It is not for the Government to tell insurance companies how to reward their staff, but it would be right for the


FSA to say that it wanted to know precisely how they intended to do so. If there appeared to be an unhealthy reliance on commission in making up a reasonable salary for employees, it would be fair for everyone to expect the authority to pay closer attention to the activities of such a sales force. If pensions mis-selling were then found, it would be fair to expect fines to be imposed and compensation ordered. Such an approach would make most companies think carefully about the proportion of pay made up of commission.
As my hon. Friend the Member for Edgbaston said, insurance companies must also learn the lessons of what has gone wrong, and put in place proper internal compliance processes to check what their staff are doing—in their name—in the street and in people's homes.
My third point for insurance companies is that it is vital for them to pay more attention to persistency rates—to how long the pension policies that they sell last. It is good business for companies to want to follow up the sales of their pensions by going back to customers and checking whether their needs have changed, and if so, selling them more business. They would then have more contented customers, who would pass on the company's name to their friends and families.
There are three further issues, all of which have been mentioned by previous speakers. The first is that of kitemarking, benchmarking or CAT standards—CAT standing for charges, access, terms.

Ms Stuart: I urge my hon. Friend to draw a clear distinction between kitemarking and benchmarking. They are different, and one may be less desirable than the other.

Mr. Kidney: I shall gladly do so. The second issue is consumer education, and the third is companies' so-called orphan funds.
I have come to the conclusion that kitemarking would be an unwise and unsafe development in personal pensions selling. Every personal pension needs to be tailored to the needs of the individual who buys it, and I do not see how kitemarks can assure buyers that the product suits their personal circumstances. If a product carries the kitemark, there is a danger that it may lead some people to believe that they have been given such an assurance.
Benchmarking is the other side of the coin. We want to see some kind of comparison between the products of different providers. The problem is that each provider devises its own brand of product. Sometimes it seems that providers go out of their way to devise a product, and the information that they give out about it, so as to prevent comparisons between their product and someone else's.
One challenge for the new FSA will be to work for more common standards between financial services products, to enable consumers to make informed comparisons. In furtherance of that aim, CAT standards may have a part to play in the debate. If there could be minimum components of a product, which people could be sure about, that might be of some help to consumers. It could go some way towards answering the Consumers Association's call for the new system to be a regulation of products rather than of the processes by which the products are sold.
that brings me neatly to the subject of consumer education. As the hon. Member for Twickenham said, all buyers have some responsibility to take care to ensure that the product that they buy is of some value to them. That responsibility is so well established that it still has its Latin tag—caveat emptor, or let the buyer beware.
However, buying pensions is a serious business, and I am not entirely sure that most of the public, including many hon. Members, have a full understanding of the pensions industry. We shall not be able to say to consumers, "You must take more care to inform yourselves about what pensions are available in the market," unless we also make the sellers of pension policies put their cards on the table and reveal precisely what their products mean.
That comes back to the point that I made earlier about common information and common standards, which would enable comparisons to be made. There is a role here for the Financial Services Authority, and it is more than policing the small print; it is promoting the kind of public debate that will encourage a greater understanding of the products between which people are being asked to choose.
Finally, we come to orphan funds. Companies are paying out billions of pounds in compensation, but where do the costs fall? Do they fall on shareholders or on the contributions made by other policyholders? Overwhelmingly, at present, it is other policyholders who pay.
As my hon. Friend the Member for Edgbaston said, policyholders pay their premiums and expect their money to be invested for their benefit—but they may find that it is going to pay compensation to other policyholders instead. How can that be? Companies have amassed funds bigger than the sum that would be needed to satisfy the reasonable expectations of existing policyholders. Excess funds have built up over the years which are now being used to pay the compensation.
There is no legislative definition of what "reasonable expectations" means. There is no record of any Government intervening to disagree with a company's decision about what those "reasonable expectations" are. However, I concede immediately that every company must have a company actuary to defend the policyholders' fund, and the Government have an actuary who is available to be consulted by the company actuary about the "reasonable expectations". I believe that policyholders deserve their own champion—someone with a higher profile than those actuaries and with tougher powers to intervene.
It is a matter of intergenerational fairness—as the Chancellor of the Exchequer said in last year's Budget statement—that we solve the problem, once and for all. In the case of Prudential, the problem has gone on for 150 years. How many more years will it take before we grasp that nettle?
In summary, the pensions business has been through a decade of disaster. Innocent consumers—in their hundreds of thousands—have been sold pensions that have caused them loss. We are now many years later on, and more of those innocent buyers are still waiting for compensation than have received it. It is a stain on the reputation of the British financial services industry, and I hope that we, the legislators, will face the failings of the past 10 years honestly and fully.
As we prepare for a new pensions settlement and one powerful regulator for all financial services, it is essential that we learn the lessons of this dismal record. Only in this way can we look forward with confidence to a clean and efficient market in financial services for the next decade—nay, the next millennium.

Mr. Quentin Davies: On a point of order, Mr. Deputy Speaker. Twice now, in an otherwise extremely well-informed and excellent debate, an hon. Member, having delivered a speech, has simply walked out of the Chamber without waiting to listen to the successor speech. On one occasion, it so happens that it was a Labour Member—on the other, it was a Liberal Democrat Member. I take the liberty of drawing this to your attention, Mr. Deputy Speaker, because there is a general feeling that it would be a great pity if what is not merely a long-standing courtesy of the House of Commons, but also an essential aspect of the very notion of debate should be eroded without its being at all remarked upon.

Mr. Deputy Speaker: Order. That is not officially a matter for the Chair—it is a convention of the House. However, I have made it known privately that I feel that hon. Members should listen to the following speeches if they have taken part in the debate—particularly when they have been called early. It is bad manners not to do so.

Mr. Kidney: Further to that point of order, Mr. Deputy Speaker. May I make it clear that the hon. Member for Grantham and Stamford (Mr. Davies) is not referring to me? I have not left the Chamber, and I have no plans to do so.

Mr. Deputy Speaker: Order. It is known that that is not so.

The Paymaster General (Mr. Geoffrey Robinson): Further to that point of order, Mr. Deputy Speaker. The hon. Member for Twickenham (Dr. Cable) indicated to me why he would have to leave, so he did extend that courtesy to this side of the House.

Mr. Deputy Speaker: Order. My memory has returned. The hon. Member for Twickenham did mention to me that because of the debate on the pre-Budget statement, he would be going to a television studio. The point made by the hon. Member for Grantham and Stamford (Mr. Davies) is on the record, and it should not be the practice of hon. Members to leave the Chamber after making a speech.

Mr. John Butterfill: It is very rare—perhaps, unfortunately, all too rare—that I find that I agree with almost every word spoken by Labour Members. The speeches from the hon. Members for Stafford (Mr. Kidney) and for Birmingham, Edgbaston (Ms Stuart) have been quite outstanding and extremely well informed.
I speak as the chairman of the all-party group on occupational pensions, a position I have held for some years. I should declare that, for some years, I was an

adviser to the British Insurance and Investment Brokers Association and the Independent Financial Advisers Association. I am also one of the trustees of the parliamentary pension fund. I have taken a long-standing interest in these matters; indeed, I am one of the guilty men who served on the Committee discussing the Financial Services Act 1986.
It is perhaps worth saying that we should take a broad view of the situation as it relates to pensions in the UK. It is true that we now enjoy a much more favourable position than almost any other country in the world in terms of the proportion of money in pensions savings. We now have more pensions savings than those accrued in the rest of the EU.
To a great extent that is due to the policies of the previous Government, who gave great encouragement to the acquisition of personal pensions and to savings in general. Although we are now debating a very serious issue—the mis-selling of personal pensions—it would be wrong to assume that, overall, the actions taken by the previous Government to encourage personal pensions have not contributed tremendously to our national well-being. We should put the problem in that perspective.
There has been a lot of criticism of the Financial Services Act 1986, which has all sorts of deficiencies—some of which I pointed out at the time of its enactment. However, it is also true that we would not be having this debate about mis-selling if the previous Government had not created the offence of mis-selling. It would not exist but for that Act. In most other western countries—and most other countries in the EU—the offence does not exist.

Ms Stuart: That reminds me of Mr. Al Fayed saying that had it not been for his honesty, the whole affair of his trying to bribe a Member of Parliament would not have come to light. It is disingenuous of the hon. Gentleman to say that had it not been for the mis-selling, the previous Government would not have set up that wonderful organisation which made that practice an offence.

Mr. Butterfill: The hon. Lady may have misheard me. I said that there would not be an offence had it not been for the legislation. In many EU countries, there is no such legislation, and what we are debating would not be considered an offence in most other countries. That fact does not excuse what took place, which was disgraceful, and I condemn it unreservedly. For all the faults in the legislation—and there were many—it was well intentioned and went a long way towards controlling a problem which could have been a good deal worse.
I was very much opposed to the multiplicity of regulators listed in the 1986 legislation. I made several speeches on that subject and argued that because there were far too many, that could lead to regulatory arbitrage—as, indeed, it did. The idea that we should have so many different bodies—including the Securities and Investments Board regulatory organisation itself—was a farce because people chose to be regulated by the regulator they thought would give them the easiest time.
That was wrong, and part of the industry is to blame. The large direct sellers said that they were highly respectable and would not need regulation. They would


accept the Investment Management Regulatory Organisation or the Life Assurance and Unit Trust Regulatory Organisation, but they wanted nothing to do with the rag, tag and bobtail that could be shoved into the Financial Intermediaries, Managers and Brokers Association.
It is extraordinary to note that the mis-selling which occurred under FIMBRA—the most underfunded regulator with the least resources and the greatest potential problems—was a great deal less than that conducted by those who were regulated by LAUTRO and IMRO, yet they were supposed to be highly respectable people who did not need regulating. At least that is what they told us when some of us went to see them.
We need to put the matter in perspective. First, I wish to deal with the direct sellers—the very large companies that said that they did not need regulation because they were all so respectable. They were clearly the worst offenders. That is not surprising because, as the hon. Member for Stafford pointed out, they engaged in much high-commission activity. Indeed, many indulged in commission-only sales, so they did not have employees as such, but people who could not eat unless they sold yet another product. People employed in such a way are hungry to sell and do not necessarily act in the best interests of the person to whom they are selling. I have made many speeches to the industry and in the House on that subject and have been a consistent opponent of high-commission and commission-only sales, which inevitably tempt salesmen into abuses. That is exactly what happened.
Labour Members have asked who pays. Their answer was right, as in most cases the policyholder pays—the people who bought the product. I declare an interest as I have two personal pension policies and I will be paying. In the case of the mutuals, no one else but the policyholders will be paying. Fortunately, the mutuals— I am a great admirer and supporter of mutuality—were less active in mis-selling than the proprietary sellers. Nevertheless, the mutuals engaged in it and to that extent their members will suffer as a result.
In the case of the proprietaries, the hon. Member for Edgbaston was right to point out there is a problem with who pays, and whether some people should be paid from orphan funds. My view is that those funds should exist to even out variations in the market. Surely their purpose is to act as a reserve. The market can change rapidly—we have seen tremendous changes recently. In some cases, the policyholder may be looking for a lump sum on maturity to repay a mortgage, but because of a downturn in market conditions there may be insufficient funds to meet his or her expectations. Presumably he was sold the product on the basis that it would generate sufficient funds to repay the mortgage. Therefore, to the extent that the orphan funds exist, surely one of their primary purposes ought to be to contribute towards bonuses in lean times. They could be built up again when times are better. The idea that such funds should be paid out willy-nilly to shareholders has been promoted in some quarters—notably by the Prudential—but should be resisted at all costs.

Ms Stuart: The problem with orphan funds is not merely excess profits but policies that have not been

cashed in and have accumulated. In the Prudential's case we are talking about £5 billion to £7 billion, which is a significant sum. The question is, should one generation benefit from what has been accumulated over several generations? Clearly, the funds are not being used to even things out at the moment. They are being used as a nest egg for when times are bad. When times are good they do not pay out.

Mr. Butterfill: I entirely agree. That was the point that I was trying to make. The funds should be used to smooth things out and to meet the reasonable expectations of policyholders. That is what the actuary is supposed to ensure, but there seems to be a risk that that is not what the Prudential intends to do.

Mr. Greenway: Surely the point is that the so-called orphan funds exist in the large insurance companies. Those are the funds that will be used to pay the compensation and that is what is happening. Whether they should be deployed in that way or more fairly, the fact is that the companies have huge resources with which to pay. The central point as regards the current controversy is that the independent financial advisory sector has no such resource. It has professional indemnity insurance, the market for which is about to collapse.

Mr. Butterfill: My hon. Friend is, as ever, extremely well informed on these matters and I agree about the difference between the proprietary funds and IFAs. He is right to be concerned about the use of orphan funds for that purpose. If the directors of such companies condoned significant mis-selling for the benefit of their shareholders, those shareholders should suffer and may then exact their retribution from those who acted in that way. That is the proper and reasonable way to deal with the problem, rather than by raiding funds that have built up for generations.
I am concerned that the problem has been made worse by some of the Government's actions. The advance corporation tax changes were an enormous raid on the pension funds. Various estimates have been made of the cost of pensions mis-selling. The Association of British Insurers estimates that it is between £8 billion and £11 billion. Even if we take the upper range, that sum would be equalled in two years by the £5 billion a year raid that the Government have made on pension funds. Let us get the picture in perspective. The biggest raiders of pension funds are on the Labour Benches. It has been suggested that the Chancellor may tax lump sums, not to mention higher rate relief. If he did so, people who rely on products to pay their mortgages would be in even greater difficulties than some of them are already.
I am astonished at the crocodile tears shed by those on the Treasury Bench. The Government are abandoning the proposal of the former Minister of State at the Department of Social Security, the right hon. Member for Birkenhead (Mr. Field), for second-tier pensions and taking steps to attack the entire industry for short-term profit for the Chancellor, yet they express such great concern about pensions mis-selling. They are right to express concern, but let us put their actions in context.
The Economic Secretary made an astonishing attack on IFAs which was not justified. That is not to say that some IFAs have not misbehaved. Of course, some of them mis-sold pensions and I hope that those who did so


deliberately and blatantly and who were wholly motivated by greed will not be able to practise as IFAs again. However, there are some greyer areas. Perhaps, those advisers may not have undertaken the full fact find, or they may have missed something that they ought to have noticed when giving best advice. If it was an innocent or careless mistake, the penalties should not be as great. Those who deliberately sold to people who had no means of knowing that the advice that they were being given was wrong and who encouraged people to leave occupational schemes knowing that that would be grotesquely to their disadvantage should never practise as independent financial advisers again.
We must consider the record of independent financial advisers. The initial report by KPMG clearly showed that IFAs engaged in less mis-selling than direct sellers—the product providers. I did not find that altogether surprising, as they were professionals and were bound to make comparisons between one product and another, however inadequate those comparisons might have been.
If we look at the results of phase 1, we find that 86 per cent. of the mis-selling was by the direct sellers—the product providers—and only 14 per cent. of the mis-selling is attributable to IFAs, despite the fact that IFAs sold 42 per cent. of the products concerned. The incidence of mis-selling by IFAs is a tiny fraction of the incidence of mis-selling by product providers. For the hon. Lady to portray IFAs as the villains of the piece was to distort the truth a little too much.

Ms Hewitt: Does the hon. Gentleman accept, and will he make it clear for the record, that my remarks referred primarily to the campaign being run by the IFA Association, and were not, as I made clear to the House, directed at every IFA?

Mr. Butterfill: I am grateful to the Economic Secretary for that clarification, although it does not take us much further. In my experience—she will know that I have been involved in the industry for some years—the IFA Association has probably done more to raise standards among IFAs than almost any other body that one can imagine. Of course the IFAA is a trade association and will seek to defend its members. It would not be doing its duty by its members unless it did so.
Let us examine some of the hon. Lady's accusations. First, as my hon. Friend the Member for Ryedale (Mr. Greenway) said, IFAs do not have the cash that is instantly available to the direct sellers. Secondly, the hon. Lady said that the IFAs went to court against the regulators, as though that was some appalling act. They went to court to establish whether it should be possible for the regulator to require them to go back to people who had not complained and ask to investigate the possibility that they had mis-sold a product.
That would be in direct contravention of the terms under which the IFAs were insured for professional indemnity. The hon. Lady knows that it was the professional indemnity insurers who were telling the IFAs that they would be in breach of contract if they behaved in that way. The only way for the IFAs to resolve that through the IFA Association was to seek a court ruling, otherwise they would be caught between a rock and a hard place.
The IFAs did not go to court to avoid co-operating in the review or to delay the process. They went to court to clarify their legal position because they had been put in

an impossible situation by the demands of the regulator. That does not seem an unreasonable way to behave. They need to clarify the matter, as the underwriters of their professional indemnity cover are saying, "We are in an impossible position. We will be asked to pay out on terms that are clearly in breach of the contract between you, the IFA, and us, the underwriters."
The underwriters are either refusing to give cover, which means that some IFAs cannot legally operate because they cannot get PI cover, or the underwriters are quoting such huge premiums that it is impossible for the IFA to operate. That is continuing problem which must be addressed by the hon. Lady and the regulator, in consultation with the IFAs, if IFAs are to continue to operate in the market. Clearly, as the IFAs were the least guilty of mis-selling, it is in the overwhelming interest of the public that independent advice should be available. I appeal to the hon. Lady to deal with this issue, which is vital for the industry.
The second problem, which I shall not labour as previous speakers have outlined it, is the basis of compensation. It has always been maintained in our courts that if someone has suffered damage, the measure of damages is his actual loss, as far as it can be quantified, and it is the loss at the time that the loss occurred, not the notional loss some years later.

Mr. Kidney: rose—

Mr. Butterfill: I give way to the learned gentleman.

Mr. Kidney: Indeed, I was a lawyer before I came to this place, so may I tell the hon. Gentleman that the assessment of loss in a civil case is carried out at the time of the hearing, not at the time that the wrong was committed, which might have been many years earlier? That makes sense; otherwise courts would be in the absurd position of awarding sums of money that were completely wrong—far too large or far too small.

Mr. Butterfill: The hon. Gentleman is partly right. The assessment of loss takes place at the time of the hearing, but the object is to put the plaintiff back in the position that he would have been in if the wrong had not been done. That is not what is being proposed. The present proposal is that there should be the benefit of hindsight and that the loss should be assessed regardless of the fact that the economic circumstances have changed—in particular, the yield on annuities has changed dramatically.
The calculation of loss is a moving target, which changes enormously depending on the date chosen to assess the loss. As I mentioned earlier, in one case the policyholder would have been £2,500 better off in 1995, but because of the changes in the annuity market since then, he is now facing a £38,000 notional loss. If he gets that money, he will be substantially better off than he would have been if he had never bought the policy. Indeed, he was better off buying the policy in the first place.
I am not sure that we should enrich people by giving them the benefit of the hindsight that we would all like to have. We would all like to own something that we could have bought, had we had the necessary information five years ago. That is surely not what the Government intend as the basis for compensation.
Several leading actuaries have examined the issue and concluded that if we proceed as the Government and the regulator propose, a large number of people will be significantly better off than they could have been if they had not taken out a particular pensions policy. As the funds of the other policyholders will generally cover the cost of compensation, we would be rewarding one group of policyholders at the expense of another, with no real justification for doing so.
The Economic Secretary referred to the PASS initiative, which was welcome. It has assisted many IFAs to deal with the problem, but I understand that that is confined to phase 1. Phase 2 is a more difficult problem because the numbers involved are much greater. That means that the cost of carrying out all the investigations in phase 2 will be much greater, although the likelihood of mis-selling is proportionately much smaller, because the people to whom the products were sold were a great deal younger. The maximum cost will be passed on to IFAs for a much lower benefit to those who may have been mis-sold a pensions policy.
I intend to press the Economic Secretary on the issue of mis-selling. A significant group of IFAs have got through phase 1 and it has been shown that they were not involved in any cases of mis-selling in phase 1.

Mr. Greenway: Or very few.

Mr. Butterfill: As my hon. Friend the Member for Ryedale says from a sedentary position, other IFAs were involved in a few cases of mis-selling. I am particularly concerned about those companies against whom there are no complaints of mis-selling. They will be required to sift through their entire portfolio of sales for the past 10 years at enormous cost—£600,000, on average. That is a colossal sum for some small firms. One IFA told me that it would take his whole staff three years to complete the process. He said that they would not be able to do any other work and that the company would go bust but for the fact that he was prepared to support it financially through the process. This exercise will drive an enormous number of IFAs out of business when there is little likelihood of mis-selling having been proven.
It would surely be correct in phase 2 to say that, if there are no complaints about potential mis-selling and if there has clearly been no mis-selling in phase 1, the test should be different. Will the Minister agree to the proposition that the Government should reimburse IFAs for the cost of the process if no evidence of mis-selling is found? That is another possibility: the Government could compensate IFAs for having impugned their professional integrity. I doubt that that proposition will be attractive to the hon. Lady, but it is one that I postulate.
I am very worried about the Government's attitude to this issue. They have demonstrated an extremely aggressive attitude towards IFAs, who have been the least guilty parties in this process by a considerable margin— 86 per cent. compared with 14 per cent. That aggressive attitude leads one to believe—and my suspicions are reinforced by personal conversations that I have had with Treasury officials—that the Government do not care about the IFA market. They think that IFAs are a bit of a nuisance and would sooner that the public dealt with

direct sellers—we know that some of them are cronies of the Prime Minister—particularly if they happened to be selling kite, CAT or some other product.
I am concerned that the Government are exhibiting a cavalier attitude towards IFAs. I am equally concerned about the principle of kitemarking, which could lead to more mis-selling. I am particularly worried also about the possible abandonment of polarisation. I have long held the view—I argued to this effect in 1986 when we were considering whether there should be hybrids in terms of sales—that the public must know the status of the person selling the pensions. People must know if they are talking to a tied salesperson who can put his hand on his heart and say, "I am telling you what I am telling you, but I am the paid sales representative of company X". In those circumstances, people would know exactly where they were and how much weight to put upon his or her advice.
When people deal with IFAs, they know that IFAs should—if they are doing their job properly—look at the whole range of the market, identify the product that is best for the individual and make an informed expert choice on the customer's behalf. If we have a hybrid situation, whereby people sell the products of five or six companies, sellers are neither IFAs nor single tied agents. Let us look at the situation where hybrids exist. In Australia, for example, the results have been disastrous. A small group of hybrid sales organisations now dominate that market. They are very large, they have forced everyone else out and there is no expert information available to consumers. That toleration of hybrid sales is one of the reasons why there has been more mis-selling of pension products in Australia than anywhere else.

Mrs. Jacqui Lait: There has been remarkable consensus and great expertise displayed in the debate so far. I plan to continue the former, but I doubt that I can add to the latter. There is not a great deal left to say about this subject, and I sympathise with the hon. Member for Twickenham (Dr. Cable) who commented much earlier in the debate that all the issues had been covered.
However, in talking about the problems that have arisen as a result of the changes introduced by the Conservative Government, it is important to dwell briefly on the impetus for that change. I was one of those who pushed very hard to open the whole pensions issue. Pension transfer values were diabolical: if one's career was not entirely in one company, one was ripped off completely when it came to pensions transfers. We needed to open up the market so that people could provide for themselves. In fact, more and more people were becoming financially astute and wished to provide for themselves.
I think that the impetus for change in the pensions area has benefited this country—as is recognised by the £600 billion under management, which, as has been pointed out, is the largest sum by a long chalk in the whole European Union. It will cushion us against potential problems that could arise as a result of the greying of the population—which was another impetus for changing the whole pensions regime.
As so much money has gone into the pensions industry in the form of savings, I must take issue with the hon. Member for Stafford (Mr. Kidney), who described the past 10 years as a "decade of disaster". Eleven billion


pounds is a huge sum, but I think that we should put the matter in perspective and compare it with the £600 billion that is under management.
Angela Knight, the Economic Secretary to the Treasury under the previous Government, was a very valuable member of the House and she did much to encourage financial companies to focus on and address the pensions mis-selling issue. I am concerned that, when Labour came to government, it raised the temperature by criticising the very companies that it is looking to to provide second pensions and ISA products. That sort of aggressive relationship with the private financial sector does not help when the Government are clearly relying on it to supply new products.
As many hon. Members have said, it is recognised that there are problems in the pensions area. I shall not repeat them all, other than to say that that problem is recognised in the biggest and the smallest companies. An insurance broker in Beckenham, who briefed me about the problem as it relates to his company, acknowledged in a letter to me that files
must be reviewed and where losses have occurred as a result of advice given not to join occupational pension schemes then redress should be available. Likewise where members have been opted out of their employer scheme and losses occurred as a result redress should be given.
There is agreement throughout the industry that the matter must be dealt with, and I am pleased that phase 1 will be completed, in essence, by the end of the year.
As many hon. Members have said, the bone of contention lies with phase 2. I am struck by the role that hindsight has played in this debate. It is clear, with hindsight, that there should have been a much tighter regulatory regime and that we should have examined the financing arrangements much more closely. Hindsight is a wonderful thing, but the problem is that we are dealing with the real world, real people and the real circumstances that prevailed when they bought their pensions.
The Economic Secretary, if I understood her correctly, said that the regulatory regime under the Financial Services Act 1986 was not what it should have been, which is precisely the point that many of us are making. We cannot expect people such as independent financial advisers, who, while funded to carry on their business, do not have access to the huge reserves that the large companies have, to be able to guess what hindsight would tell them about the regulatory regime that they needed to act under when they were selling their policies. I was interested in a simple statement that the Independent Financial Advisers Association made before the Treasury Select Committee when it gave evidence on 25 June. It said:
The review is fast becoming a process to ensure no one loses money, in any circumstances, rather than a review of mis-selling.
When the Economic Secretary called in aid the Association of British Insurers rather than the IFA Association, it was interesting to note that the ABI, in much more restrained language, made exactly the same point in its briefing to Members for this debate. The association states that phase 2 will be completed when
various factors such as the complexity of loss assessment, its interaction with the availability of actuarial resources and the degree of accuracy required
are understood. If the ABI is making that point, the IFA Association, which is making the same point in a much more clear and direct way, deserves some sympathy.
Beckenham is not known as a hive of commercial or industrial activity. However, I have quoted one insurance broker and I have been impressed by the number of IFAs who have come to me with great feeling about the issue that we are debating. I shall outline one company's problem. Its senior partner is its greatest earnings getter. The company specialises in employee and executive benefits. The partner has a client list of blue chip companies, many of which are in the new industries whose age profile is of necessity young. He has done no business getting for the past two years because he has been engaged entirely on the review. In addition, the company has had to hire outside consultants to a current cost of £80,000.
When phase 2 comes through and if the current annuity rates apply to the pensions that the senior partner's company has sold to younger people, the cost could be £1 million, and that equals bankruptcy. It is an IFA with no complaints against it.
It cannot make economic sense for a senior partner not to be getting any business. That is why I add my plea to those made by all those who have asked the Economic Secretary and the Treasury to look again at the regime for phase 2. No one is asking for it to be withdrawn. We accept that there is mis-selling, and if there is mis-selling, compensation is due. However, we need to ensure that those IFAs which have done a good job and which complied in their understanding of what the regulations were at the time should be able to continue in business.
In the spirit of slight mischievousness I throw in the thought that if current annuity rates can be used for reviews calculated now, and given that there will be delays, will the rates return to the level at which they stood at the time when pensions were sold, bearing in mind the announcements made today by the Chancellor of the Exchequer of increased public spending? Therefore, is it not in the interests of everybody to examine whether the regime for phase 2 is the best and most effective way in which to deal with pensions mis-selling?

Mr. John Greenway: I again remind the House of my many interests in these matters. I shall painstakingly go through them because there is a point to be made on each one. I have worked in the insurance industry since 1970. I am still an elected member of the Insurance Brokers Registration Council. The council has had to give up its status as an authorised body under the Financial Services Act 1986. For reasons which the Minister knows, the council's future is in dispute. One of the factors in having to give up its status was the complexity of the work involved in carrying out the phase 2 review and the resources required if it was to be done properly. That is a telling point for the House to consider. If one of the authorised bodies feels that the cost of carrying out the review is so great that it has to hand the job over to the Financial Services Authority, no wonder small independent financial advisers feel constrained by the potential cost.
I am a director of a major insurance broker and independent financial adviser, which purchased the company which I started in 1973. It did so three or four years ago. Sadly, I owned very little of it by then. Its headquarters are in Harrogate, the constituency of the hon. Member for Harrogate and Knaresborough (Mr. Willis).
I think that it would be helpful to share with the House what has happened to us. We were fined£4,000 along with most other IFAs because of the delay on phase 1. We gave all our phase 1 cases—all 39—to an out-sourcing actuarial service, which proceeded to do nothing with them because all its efforts involved sorting out the insurers. We brought them back in-house and we have put them all right. We expect to be in order by the end of this year. We think that there are possibly eight or nine cases to compensate.
We think that we have about 150 transfer cases in phase 2, the majority of which are compliant. Until we examine them all in detail, we cannot be sure. We have 7,000 IFA clients, 2,700 personal pension policy holders and only two cases where there was an opt-out to buy a personal pension. I cannot say how typical we are but I suspect that we are typical of most of the really professional IFA firms. The sadness is that in some elements of the IFA sector—as in the employed sector, to which the hon. Member for Hemsworth (Mr. Trickett) referred—a great deal was left to be desired on standards of training, competence and the quality of advice.
The industry has put much of that behind it. To be authorised now, one must be professionally qualified, and the industry can be proud of that. Those who are left, particularly in the IFA sector, to clear up what needs to be done have put themselves through the professional mill. They have achieved their financial planning certificate. A great many have gone further and achieved the advanced FPC and are members of the Society of Financial Advisers. We are dealing now with an independent financial advisory industry that is considerably more professional and committed than the whole industry was when much of the mis-selling that we are discussing took place.
In an earlier intervention, I declared my interest as a chairman of the Federation of Insurance and Investment Intermediary Associations, of which the IFAA is a member. That is an unpaid post, but I am a paid adviser to the Institute of Insurance Brokers, for which mis-selling is not a huge problem. As the Economic Secretary knows, we have much greater concerns about dealing with the future of the Insurance Brokers Registration Council, and I hope to talk to her soon about that.
I want to correct two points that the Economic Secretary made earlier. If there has been misapprehension on her part or misunderstanding of what the IFAA has been trying to do, this is the opportunity to put that right. We are not saying that there is not a problem to resolve in phase 2—clearly there is a problem. We are asking the hon. Lady to recognise that the problem in phase 2 is fundamentally different from that in phase 1.
Phase 1 will be completed by Christmas with, perhaps, a few exceptions in the IFA networks. I ask the hon. Lady to be kind and understanding to them. I do not belong to an IFA network and I have no brief for them, but I know that they have spent a great deal of money on phase 1.
The problem is that the on-going cost of regulation and remaining in business means that many smaller IFAs have joined networks to stay in business. The chief executive of the Personal Investment Authority, Colette Bowe, encouraged many to do so. Much of the mis-selling that the networks are now dealing with occurred before the

firms were part of the networks, which is why there has been a delay. I hope that there will not be more unnecessary fines because they simply deplete already hard-pressed resources.
I want to suggest to the Economic Secretary a way in which the problem of phase 2 can be resolved. Time does not allow me to go into detail. Many speakers have put their finger on the problem, but they have not suggested a solution. The solution lies in the way in which the financial viability test can be conducted.
The test allows the IFA to examine files to find out whether the advice given at the time was correct and reasonable. That involves examining the quotation—the basis of the projections on which it was made is a key factor—to find out whether it was based on reasonable assumptions of growth. Most quotes were based on assumptions of growth within the range of 8 to 12 per cent. At the time, the market was achieving 25 per cent. growth as a norm. Of course, that has changed. If the assumptions were reasonable compared with the information from the scheme where there had been a proposed transfer, that should be adequate for the purposes of the phase 2 review.

Mr. Butterfill: My hon. Friend makes a point about the information from the scheme. I am sure that he will agree that many scheme trustees and actuaries gave misleading information because they saw an opportunity to get rid of some of their liabilities and gave an assessment of the value that was lower than reality.

Mr. Greenway: That is true. There is a problem in some cases because schemes merely sent a cheque, so there is no other information, and there is disparity between what it cost to transfer out of the scheme and what it cost subsequently to transfer back in. That is all old territory and we accept that.
I suggest to the Economic Secretary that the problem lies in the insistence by the Financial Services Authority and the PIA that if—

Mr. Willis: Will the hon. Gentleman give way?

Mr. Greenway: In a moment. I want to make an important point. The regulator is saying that if the financial viability test reveals that the advice was reasonable, the policyholder should still be sent a questionnaire asking him to recall exactly what was discussed at the time. We understand why: in those days, the standard of record-keeping was not so high and we did not have the detailed files that we have now. PI insurers have taken great exception to the questionnaire because they see it as an admission of guilt—a confession that there might be something wrong. Of course, that wholly undermines the legal basis on which the PI insurance was underwritten and generally predicated.
In many cases, it will be clear from a simple look at the financial viability test that the advice given was bad and that compensation is due. However, it will speed the phase 2 process considerably if we have the financial viability test without the questionnaire, or perhaps with a questionnaire that is phrased rather more sensibly than the one now proposed.
I ask the Economic Secretary to consider two other crucial points. First, in suggesting that the arrangements for phase 2 should be marginally different from those for phase 1, we are not saying that phase 1 was wrong. It is not our intention to criticise the way in which phase 1 was conducted. My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) and I have had this argument many times. I have always taken the view that under phase 1, the majority of cases were clearly going to require compensation. As I have said in the House before, I am appalled that so many insurance companies accepted much of the business in question. They must have known that it was wrong for them to do so.
Phase 2 is quite different. Many of the problem cases are transfers. The House passed the primary legislation that provided the opportunity to transfer, so Parliament must have thought that it was a worthwhile exercise. In effect, however, to judge by the way in which it seems that phase 2 is likely to be conducted, it is almost inevitable that almost all the transfers will be non-compliant. That cannot be right. We are not in denial; we are simply asking whether things can be done fairly and sensibly.
The second point involves the serious problem of professional indemnity insurance. No one has yet mentioned the Rothschild Assurance plc v. Collyear judgment, which was passed on 29 September. I am not surprised that no one has referred to it because these are very technical matters. That judgment effectively says that it is in order for an IFA to give a blanket declaration to his PI insurer. Until that judgment, PI insurers were refusing to accept blanket declarations. The consequences of what has now happened are extremely dire.
Our business faced a threefold increase in its premium. We managed to make our own blanket declaration before the end of October and negotiated a better arrangement elsewhere, but only with a £25,000 excess on each and every claim. That is now commonplace in the market. If we are not careful, we shall find that IFAs, whether or not they survive the phase 2 review, will be driven out of business because they cannot afford the PI cover. The cover that they have is not adequate, and it may well prove unacceptable to the regulator because the excess is too great in relation to the total volume of business.
We have to restore some stability to a collapsing professional indemnity insurance market. That is why resolving the problem of the questionnaire in respect of the financial viability test is utterly crucial. The PI insurers have taken grave exception to the questionnaire, but I hope that in the few weeks that we have left before the phase 2 process starts—we are not asking for it to be delayed—we can find an acceptable solution. My hon. Friend the Member for Beckenham (Mrs. Lait) said that the Association of British Insurers is still not satisfied with the detailed arrangements, a point which it made to the all-party insurance and financial services group only two weeks ago, at our previous meeting.
I plead with the Economic Secretary to sit down and discuss this. She may not realise what her diary secretary has done today, but it has been agreed that the Independent Financial Advisers Association will see her on 19 November. We must find a solution which the ABI, IFAs, PI insurers, her Department and the regulator can live with. I believe passionately, and agree wholeheartedly with those who feel strongly about this, that we must resolve the matter as quickly as we reasonably can,

but that means that the arrangements must be practical, sensible and workable. They could be, but, at the moment, they are not.

Mr. Laurence Robertson: I wanted to take part in the debate because I believe that a major injustice is being inflicted, especially on independent financial advisers, on some insurance companies and possibly on a great many policyholders.
Like many hon. Members who have spoken, I make it clear from the outset that people who were genuinely mis-sold pensions need compensation, and we must all support any moves towards that. To provide adequate and fair compensation, without destroying many independent financial advisers and without penalising other policyholders, the review must be fair. I believe that it is not.
I shall outline some ways in which the review is unfair, both in its concept and its application. There is an automatic assumption that pensions were mis-sold; indeed the title of the debate is "Personal pensions mis-selling". The letter that companies are forced to send to their clients is headed "Your Pension: Were you badly advised?". Mis-selling is presumed to have taken place, before the company has even had a chance to get a response from its clients. It is assumed to be guilty in every case, without those cases having been proven.
Consideration of how the process starts perhaps explains what I am getting at. The client does not approach the company with a complaint, as is the case in every other walk of life. The company, as we have heard, has to write to all its clients, in a prejudicial way, inviting them to request a review of a policy which they may have been totally happy with.
That process not only undermines companies and the industry, which is not in the best interests of the public, but is grossly unfair and against the spirit of natural justice. Companies are required to badger their clients into requesting reviews, even though many of them have shown, and will show when contacted, that they have no interest at all in such reviews.
Once a request for a review has been received, the review begins and firms are, in the words of the Economic Secretary's letter to hon. Members dated 14 October, required to put matters right if they have broken rules in force at the time of giving advice, and if the investors concerned have suffered financial loss. In my view, however, the rules which prevailed at the time the advice was given were not rules at all—they were guidelines.
People in large companies were employed to sell pension plans, although, as I said in an intervention, that is not strictly true because they were self-employed and existed on that basis with the blessing of the regulator and the Inland Revenue. They were not taken on as advisers, nor as consultants; they were salesmen who often worked on a commission-only basis, and were rewarded when they made sales and fired when they did not. There are differences between the way in which people were allowed to operate at that time and the stricter conditions that they now have to work under.
The practice of best advice was introduced in 1986, but if the regulator had been serious about ensuring that best advice was given he should have introduced a


professional qualification for financial services at that time. I understand that such a qualification exists now, but it was barely a requirement for the selling of insurance products during the period covered by the review— 1988–94.
It is therefore questionable whether the rules referred to in the Minister's letter were broken. It is my submission that, 10 years on, it is virtually impossible to assess exactly what advice was given, and even more difficult to judge that advice against the background and the economic conditions that prevailed at that time.
A judgment on whether a pension was rightly or wrongly sold should be made against growth rates at that time and not against current rates. A personal pension plan sold in 1988 may have appeared to all concerned far more attractive an investment than it does now, especially given the raid that the Labour Government have made on ACT credits.
The advice given during the period in question was somehow supposed to take into account factors that could not have been known at the time. The decisions taken at the time must be put in context. It is not right to penalise someone for giving the best advice at that time, even if it did not turn out to be correct. It is a long-standing principle of British justice and democracy that legislation should not be retrospective. It is not fair to judge the sales of pensions in the 1980s against the standards and penalties that apply in the 1990s.
Even if it were possible to look back 10 years accurately, a financial comparison cannot be made. The review must compare the actual and stated provision offered by an occupational pension scheme with the likely benefits of a personal pension plan. However, that is not a comparison of like with like. Growth rates have fallen from their 1988 level; personal pension plans may compare less favourably with occupational schemes at today's level. But what if growth rates increase over the remaining life of the pension plan? How would the two then compare? It is impossible to say, so it is impossible to satisfy the second requirement in the Minister's letter— that a financial loss must have been suffered by the investor before compensation is payable.
The only time such a judgment can be made is when the person retires and draws on that pension. A comparison made in any other way is pure guesswork, and is unfair to the firm and possibly to the policyholders. It is like accusing someone of murder when the victim has not yet died.
That is especially so during the second phase of the pension review, which considers the cases of younger people. Younger people may have 30 years to go before they claim their pension. How on earth can an estimate be made of what their pension will be worth in 30 years' time? What about the effects of inflation? Younger people will not stay in one job—as people did years ago—and that will have an impact on the value of an occupational pension. Personal pension plans are flexible in that they are linked to the person, not the job. Occupational schemes, for all their merits, are not.
Are charges for a transfer from one occupational scheme to another to be taken into account when assessing the relative values? Are they judged separately for every person for whom the review is being carried out?
Precisely how has that been carried out? How do the regulators know to which company individuals are likely to transfer, or for how long they will stay in their present job, to which the occupational pension is linked?
A further consideration when making a comparison between occupational and personal pensions is the viability and sustainability of occupational schemes. Some schemes, which could be called in-out schemes, have recently come under pressure, and their continued funding puts pressure on the resources of the services provided by the organisations that run them. The teachers' pension scheme and the police pension scheme are two such examples. Are those carrying out the review able to judge the financial and non-financial aspects of the respective schemes? I suggest that that is impossible.
What about the other benefits that a private pension plan offers which are not merely financial? Such benefits include the flexibility that such a plan offers, allowing policyholders to draw their pension at any time between the ages of 50 and 75. How many occupational pension schemes offer that degree of flexibility?
Provision for early retirement is now threatened in a number of these in-out schemes. Is allowance made for that when calculating the respective worth of occupational schemes and private pension plans?
What about the death-in-service benefit comparisons? People dying in their 20s would undoubtedly have more money credited to their estates from occupational schemes than people in private schemes; but people dying in their 50s could have accumulated far more capital in private schemes than they would have in occupational schemes. How have the regulators assessed that factor?
Not only is it difficult to assess whether the rules have been broken, and whether a policy holder has suffered a financial loss; it is difficult to assess who should pay compensation for any mis-selling that may have occurred. We have heard various views on who should pay, but all the larger companies will do is pass on any compensation payments that they make, or any fines that they pay, to the with-profits policy holders. Companies' ability to do that is unfair on the small independent advisers whom the industry itself advises people to consult in preference to single companies. Independent advisers have no one to whom they can pass on costs; in such circumstances, they will simply go out of business.
I ask the Government to look at the way in which the second phase of the review, in particular, is being conducted. All that I have said so far relates to the past, but I would add that the financial services industry is extremely important to the country. If people lose faith in it, that will be to their great detriment. I urge the Government to ensure that such a thing does not happen again, by stating that a recognised professional qualification must be obtained before anyone is allowed to become involved in the industry. Let me stress the need to protect the innocent companies that have worked so hard for so many years, so that they do not have to go out of business owing to a heavy-handed approach to regulation.

Mr. Phil Willis: One of the joys of speaking last in a debate through which one has had to sit is benefiting from the experience of other speakers. Tonight's debate has demonstrated one of the


great joys of being in the House of Commons. It was a delight to hear the speeches of the hon. Member for Birmingham, Edgbaston (Ms Stuart), the right hon. Member for South Norfolk (Mr. MacGregor), the hon. Member for Bournemouth, West (Mr. Butterfill) and, indeed, my neighbour the hon. Member for Ryedale (Mr. Greenway). I must add that I have no interest to declare, apart from the interests of a constituency which, according to my hon. Friend the Member for Twickenham (Dr. Cable), boasts more independent financial advisers than any other constituency in Britain. I was glad to learn that it also contains the former company of the hon. Member for Ryedale.
I listened to the debate with interest. Given the exercise in misinformation and sophistry that we have witnessed, the Government and their regulators should be congratulated on the spectacular success of their handling of the so-called pensions mis-selling review. For too long the pensions mis-selling scandal has been a convenient vehicle for the nurturing of populist tendencies and the furthering of political and regulatory ambitions, and has provided an easy target for the filling of sensational news space. The prevailing attitude has been, "Never mind the justice, just feel the self-righteousness"; there has certainly been a sense of that this evening.
The purpose of regulation is simple: to protect the investor from the excesses of those who might seek to misguide him for personal gain. Yet, under the phase 2 procedures, the regulator has designed a process that will ensure that clients will always have a case for compensation, and the financial adviser will always be in the wrong. That approach is closer to tyranny than to regulation.
Many of my constituents are employed as independent financial advisers or work for them, either running their own firms or as part of larger organisations, and that must apply to nearly every Member of Parliament. Along with many others, I suspect, I have received few complaints about the services that those advisers provide: in fact, I have not received one complaint since my election. Yet they provide as many as 15,000 jobs throughout the country and most of them, or many of them, are at risk if phase 2 is allowed to progress in its present form.
It does the Economic Secretary to the Treasury no credit that her letter to Members of Parliament was so dismissive of what was a serious attempt by the IFAA to bring this subject into wider debate. If an association is not allowed to lobby Members of Parliament in the way it did, it is a sad state of affairs, although I admit that today's debate is welcome and my constituents pass on their thanks to the Economic Secretary for holding it.
Let me assure the House that I and the people whom I represent are committed to the view that clients of independent financial advisers who have been negligently or poorly advised should receive proper compensation; that is not in doubt. There can be no argument about it. Independent financial advisers should and must be held to account, just like large companies.
However, the process and methodology by which phase 2 is to be carried out goes far beyond what is required to provide an equitable solution to the problems. There is a danger that, in the natural desire to compensate those who were mis-sold pensions, enthusiasm is being carried to the point of trying to ensure that no one can ever lose any

money. It is much like going to the races and the bookies being obliged to give people a return even if their horse falls at the first fence.
Yes, there was mis-selling and scandal in many of those cases that fell within phase 1 of the review: those who were close to retirement, have now retired or have even died. Rightly, those people and their families must receive proper recompense; but with phase 2, another scandal is upon us: the decimation of the independent financial adviser sector, more through the inequity and artificiality of the phase 2 review process that has been set down by the regulator and supported by the Government than by any malpractice by independent financial advisers.
The majority of phase 2 cases are in respect of people who are under 35 and therefore have many years to go before retirement. To view those cases in the same light as those under phase 1 simply cannot be justified.
The regulator affirms that individual cases will be judged in terms of the rules in force at the time the advice was given. If those rules were broken, the case must be reviewed to find out whether the client has suffered financial loss as a result of acting on the independent financial adviser's advice. That is reasonable, but pension transfers were transacted from July 1988 and no specific guidance as to the regulator's requirements for the handling of that type of business was issued until early 1994, after the Securities and Investments Board identified possible cases of misadvice following the KPMG investigation.
I heard what the Economic Secretary said earlier: she dismissed those allegations. I would like her to put a paper in the Library demonstrating when the regulations were brought in, so that we can have a clear, definitive statement on that.
The regulator's response to KPMG's investigation was to impose stringent standards, drafted with the exact knowledge of hindsight and with retrospective effect, in the pretence that those standards had existed from the outset. They had not. It is important to realise that the Financial Services Act 1986 came into effect only in 1988. As we know, it was an unfortunate coincidence that the Act was in its infancy at the very time when the pension transfer business first started to be transacted.
There was an acceptance that all parties would require time for a "learning curve" to adopt procedures, to develop systems and to familiarise those who gave financial advice to clients with the practices required to comply with the new legislation. That, too, was right; it happens in any industry.
That explains why, from 1988 to 1994, regulators did not find significant rule-breaking in the sectors that are now being pursued with such crusading zeal. That regulatory zeal, fortified with the certainty of hindsight, will render nearly all the cases that fall within phase 2 in breach of the rules of the time, as now defined by the regulator.
The injustice does not end there. Having failed the now virtually impossible rule breach test, a case must be reviewed to identify whether there has been mis-selling and to quantify the amount of compensation due to the client. For the purpose of assessing whether the individual has suffered any financial loss, the regulator states that the advice can be measured by comparing the estimated benefits of retirement that the occupational pension scheme would provide with the estimated benefits from


the alternative personal pension. Both calculations should be made using projections of future growth and expectations of annuity rates such as could be reasonably deduced from the investment conditions when the advice was given. As the hon. Member for Ryedale said, that is the so-called financial viability test.
Again, that is an extremely reasonable approach—except that the regulator then imposes on the process the requirement that the client complete a questionnaire that requires the exact recall of specific events in the advice process that happened as long ago as 10 years. Most people cannot remember where they went on holiday 10 years or even five years ago, let alone recall the specific detail of the hotel bedroom or the lunchtime menu. How realistic is it to expect them to have a precise recall of every detail of the complicated process involved in reaching a decision as to whether to transfer a pension from an employer's scheme to a private pension?
In the regulator's view, failure by the individual to give a positive response to each of the questions on the questionnaire is just about conclusive proof that the individual has been misadvised. Surely that is nonsense. If the only thing that comes out of the debate today is that the Economic Secretary drops the questionnaire from phase 2, we will have had a very successful debate.
I am sure that most people are perfectly honest and would answer truthfully to the best of their ability—particularly Liberal Democrats. However, because of all the publicity surrounding this issue, an expectation of compensation has been built up which even the most honest of citizens might find hard to resist.
The regulator then requires a different calculation method to be used to assess whether the individual is due compensation. That method ignores the reasonable assumptions made when the advice was given, based on the investment conditions of the time, in favour of assumptions based on current market conditions. That is a grossly inequitable approach and can have no result other than to ensure that the majority of cases that come within phase 2 are artificially deemed to be due compensation. That offends against natural justice.
It is a fact that investment market conditions are ever changing and that future growth of the funds and annuity rates will reflect market movements, up as well as down. Recently, we have seen a significant downturn in investment markets and a steep decline in bond yields which has reduced current annuity rates to the lowest in living memory.
On the "Today" programme on 2 November, the Chancellor boasted that one of the successes of the Government's financial policy was that annuity rates were at their lowest for 35 years. When the Minister replies, perhaps she will say whether that is deliberate Government policy. If it is, it impacts significantly on phase 2 and undermines its credibility. At some time in the future, I can see that annuities may be removed as a compulsory way of securing people's pensions if that is Government policy. It is hardly surprising that, based on current conditions, the estimated returns under personal pension plans are showing a significant shortfall compared with the figures quoted as long ago as 10 years.
In 1988, when the first transfer cases took place, the annuity rate for a man aged 65 was 11 per cent. In 1992, the equivalent rate was 10.5 per cent., by 1994 it was

9.5 per cent. and today the rate is 8 per cent. It is mathematically simple to deduce that those who took advice in 1988 now require 37 per cent. more retirement funds to produce the same pension. The figure is 31 per cent. for those who acted in 1992 and 19 per cent. for those who transferred in 1994. That is caused not by poor advice or mis-selling, but purely by movements in the investment markets which are outside the adviser's control.
Are we really to believe that, over the next 20 to 30 years, which are the retirement years for most phase 2 cases, investment markets will show no recovery? The approach is so fundamentally flawed and so biased against the adviser that, were the cases to be brought to a court of law, they would be unlikely to succeed. Why then should the financial services industry be expected to make compensation payments on the basis of a calculation that is arbitrary and demonstrably inequitable, and which will result in windfall payments to many who have absolutely no justifiable claim?
If phase 2 of the pensions review is allowed to proceed in its current form, the role of financial adviser will be changed dramatically. Not only will it be expected that sound, professional financial advice should be given, but the adviser will be required, year by year, to have the ability to predict precisely movements in investment markets and to guarantee returns at any given point. In the past 18 months, the Government have failed to make such predictions. How is it reasonable to expect independent financial advisers to do so over a long period?
Today's debate has dealt with many of the flaws in phase 2 and demonstrated the House's unanimity on the need to resolve the pensions mis-selling issue. We look now to the Government to show some sense and reason in trying to conclude the exercise swiftly and without punishing independent financial advisers who were not at fault.

Ms Hewitt: With the leave of the House, I should like to respond to our excellent debate. We have heard from at least two of the trustees of the parliamentary pension fund—my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart), and the right hon. Member for South Norfolk (Mr. MacGregor)—

Mr. MacGregor: My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) is a trustee.

Ms Hewitt: Forgive me; we have heard from three trustees—[HON. MEMBERS: "Four."] We have heard from four trustees. It is encouraging to know that the pensions of right hon. and hon. Members are in such safe hands.
We have heard from several hon. Members on both sides of the House—including my hon. Friend the Member for Stafford (Mr. Kidney) and the hon. Member for Ryedale (Mr. Greenway)—who have extensive knowledge of the industry and the law. We have heard also from hon. Members—notably my hon. Friend the Member for Hemsworth (Mr. Trickett)—with deep constituency experience of the impact that personal pensions mis-selling has had on the lives of individuals.
Tomorrow, I shall, of course, read the full debate with interest, to ensure that I have not inadvertently overlooked any point. I shall also draw the debate to the attention of the regulators, just in case they do not look at it for themselves.
As several hon. Members have said, much common ground has been demonstrated in the debate, and I warmly welcome it. There is clear agreement on both sides of the House that there was mis-selling of personal pensions. There is agreement also on the scale of the mis-selling, and that the mis-selling was a scandal. Moreover, there is agreement that the situation must be put right: as a matter of justice to the individuals who have lost savings and future retirement income; to ensure confidence in the industry—including independent financial advisers, who, I assure the House, will have an extremely important role to play; and to provide thereby a sound basis for people's future pensions and savings.
I regret to say that I cannot agree with all the points that have been made in the debate. I was astonished to hear the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) suggest that the progress that has been made on the review is attributable to the previous Government's actions. Although I am in no way criticising my predecessor, Angela Knight—whom I look forward to meeting in her new role—I should draw the House's attention to the facts.
In March 1997, three months after the first deadline for priority cases had passed, only 15 per cent. of those cases had been resolved. The figure has now reached about 90 per cent. due to the tough action and the tough stance that my predecessor took and that I shall maintain. Hon. Members who welcome the progress that has been made with phase 1 must in all honesty give credit where it is due to the tough stance of the present Government, particularly my predecessor.
I regret the suggestion by the hon. Member for Harrogate and Knaresborough (Mr. Willis) that the Government's tough action had been motivated by political advancement or self-righteousness. I hope that I misunderstood him, but he certainly seemed to make that suggestion. The facts as I have given them make it very clear that the Government and my predecessor were motivated entirely by a determination to get the mis-selling scandal put right in the interests of consumers, who are our constituents. That is what we have done and will continue to do.
A succession of points have been made about independent financial advisers. Several hon. Members have complained about the burden that is being placed on IFAs. Let me make it clear that there is an issue for IFAs to face up to: according to the information provided to us that we have published, three of the firms that we have been monitoring—all IFAs—have missed their targets for completing all priority cases. If we look back at the original deadline of 31 December 1997, we see that more than 600 small IFAs failed to meet their first priority target.
Of the phase 1 cases, the FSA has estimated that, on average, an IFA will deal with 1.8 cases of personal pensions mis-selling and in phase 2 the average will be 2.1 cases. That is not a heavy burden. An IFA—an individual or a firm—who has given good advice and not mis-sold personal pensions has nothing to fear from the phase 2 review. Of course the burden is greater for those

who did not keep proper records of their business at the time or who failed to preserve such records—an action for which there is no excuse whatever. It was made clear when the extent of personal pensions mis-selling first came to light that records should be kept, and in many cases preserved indefinitely.
Many hon. Members have suggested that the review is retrospective. Let me deal with that again in some detail. As the hon. Member for Harrogate and Knaresborough admitted, the regulators' review guidance specifically states:
It goes without saying that the question of whether a firm was at fault in compliance terms must be judged without the wisdom of hindsight.
So let us look at the rules that were in force at the time. They obliged a regulated firm to inform itself about the client's circumstances and objectives and to give suitable advice, to give its client adequate information so as to understand the nature and effect of the recommended transactions, to ensure that the client understood the risks, and to give clear and not misleading information.
The FIMBRA conduct of business rules that were in force at the time state, for example, that a transaction should not take place unless the adviser can satisfy himself that
 "the client understands the extent to which he will be exposed to risk".
The rules also state quite unambiguously that the investment should suit the circumstances of the client and that the adviser should recommend the best product available for the client. The rules were and are perfectly clear in their meaning, and certainly would not extend to selling an unsuitable product to an unknowing investor.
The hon. Members for Ryedale and for Bournemouth, West (Mr. Butterfill) mentioned professional indemnity insurance, on which there are serious issues. The regulators and the majority of the insurers reached an accord in January 1996 on the terms under which the review could proceed without negating IFAs' insurance. The FSA is confident that the design of phase 2 is consistent with that accord. The regulators see no case for a different approach for PI insured firms. That accord allowed firms to send revised letters and questionnaires to investors.
The hon. Member for Maldon and East Chelmsford asked whether I was willing to meet the IFA association. Of course I am. I look forward to doing so later this month and discussing the issues with the advisers face to face. However, the point that I made in opening the debate stands—the IFAs who are dragging their feet on phase 1 must take action to complete phase 1. The sooner they get on with phase 2, the better.
The right hon. Member for South Norfolk, the hon. Member for Bournemouth, West and others asked how the loss will be calculated, and suggested that it was wrong to calculate it on the basis of the situation in force at the time that the review is made. I underline the point that I made in opening the debate: whether a personal pension was mis-sold is judged by reference to the rules and standards in force at the time, but the extent of the loss, if any, must be assessed at the time that the review of the case is made.
Conservative Members shake their heads, but they should listen. The guidance on how that should be done is based on the independent advice of senior members


of the actuarial profession. The Government Actuary has confirmed that the methodology was appropriate, and that the actuarial assumptions fell within a range that actuaries would regard as acceptable for these purposes.
In all respects, the review process reflects the practice of the courts. If it did not, phase 2 investors who believed that they had suffered loss would have a redress in the courts that was not available to them under the regulatory action that we are ensuring. That would place a far greater burden of uncertainty on the IFAs and the firms responsible for mis-selling.
Although losses for phase 2 cases are generally lower than for the first priority cases, they are none the less widespread and material. Extensive research conducted by the FSA in deciding how phase 2 should be conducted estimates that there are nearly 1 million transfer cases, and where there is a loss it averages £4,000; 154,000 cases of opt-outs, with an average loss ranging from £3,500 to £7,250; and up to 700,000 cases of non-joiners, with an average loss in the range £2,250 to £12,000.
Those are significant sums. The idea put forward by one hon. Member, that £11 billion is a mere drop in the bucket compared with the total funds under management, will be of no comfort to younger investors who were ill advised and suffered loss as a result.
Several hon. Members have suggested that there should be no immediate review for the younger investors, and that no loss should be calculated until they reach retirement age. If it is difficult to conduct a review now, eight or 10 years after the mis-selling may have taken place, it will be virtually impossible to do so when the young investors retire, by which time the IFA or firm that sold the personal pension may have merged, gone out of business, retired, died or destroyed the records.
The suggestion is absurd, and would have the additionally damaging effect on the industry of leaving it in total uncertainty for 20, 30 or even 40 years as to the extent of the losses for which compensation might in future have to be paid. As every hon. Member will know, it is precisely the pension contributions that people make when they are young that are of the most value to them in securing a decent standard of living when they retire.

Mr. Butterfill: Will the Minister give way?

Ms Hewitt: No. I gave way extensively during my opening remarks, and I still have a great deal of material to get through, and many points to which I wish to respond.
However, perhaps I should have dealt earlier with the point that the hon. Gentleman raised, which was about the PASS initiative by the Association of British Insurers. As he said, that was only for phase 1. Many IFAs are still struggling to complete phase 1, but if they need help with phase 2—no doubt many will—I certainly hope that those running the PASS initiative will consider their requests sympathetically. The issue had not been brought to my attention before.
The hon. Gentleman also raised an important point when he made a persuasive case about the value of the present polarisation rule. That matter is being reviewed by the Financial Services Authority now. Strong arguments are made on both sides, and I want to defer judgment until the FSA has completed its work.
It has also been suggested—by the right hon. Member for South Norfolk, I think—that rebate-only cases should be completely excluded from phase 2. I have no doubt that that idea will be considered by the FSA if, as the review unfolds, there is good reason for dealing differently with a particular category of case. It is far too early to make a judgment now.
The FSA has been keen throughout to learn from the experience of the industry in implementing phase 1. Phase 2 is identical in most respects to the phase 1 procedure, with which even the Independent Financial Advisers Association says that it is now content. The exception, of course, is the way in which firms will be actively required to seek out investors and bring appropriate cases within the review.
That is being done because the regulators know, as do the Government, that awareness of a possible pensions mis-selling will be considerably lower among younger investors than it was among those who were close to, or had already reached, retirement age when the personal pensions mis-selling scandal first came to public attention.
It is unreasonable to suggest, as many hon. Members have, that the onus should be on those clients, those investors, to come forward, with no initiative being taken by those upon whom the responsibility must fall.

Mr. Peter Brooke: Will the Minister give way?

Ms Hewitt: No. I have already said that I have a great deal to get through in my closing remarks, and I do not intend to give way.
I wish to refer to the question—raised by my hon. Friend the Member for Edgbaston and by the hon. Members for Twickenham (Dr. Cable) and for Bournemouth, West—of where the costs of pensions mis-selling fall. The insurance directorate issued guidance to insurers in October 1994 on where the costs of compensation for pensions mis-selling should fall. That guidance applies to phase 2 just as it did to phase 1 of the review. The insurance directorate of the Treasury is monitoring compliance with that guidance.
The basic principle, which is very simple, is that the costs should be shared fairly among those parties which stood to gain from the sale of the pension. That will include both the shareholders and the policyholders in a proprietary company. In the case of mutual insurers, there is no alternative but for policyholders to be used. In the case of shareholder-owned companies, we consider it reasonable for the with-profits policyholders to bear a proportion of the costs, following the principle that they share in the good times as well as the bad, to the extent that they stood to share any profits made from the sale of pensions contracts involved—and, of course, provided that that does not lead to a failure to meet policyholders' reasonable benefit expectations.
My hon. Friend the Member for Edgbaston, who is extremely knowledgeable on the subject, mentioned orphan assets and inherited estates, which is a distinct— but none the less linked—issue. Our objective remains to protect policyholders in line with the normal position that with-profits policyholders should share in the whole surplus of a with-profits fund—usually in the proportion of at least 90 per cent. Any exceptions to that norm need to be carefully justified. However, the precise


circumstances of each case differ, and it is not always easy to judge where the legal ownership of these often substantial surpluses lies.
In many cases, use of the inherited estate to meet personal pensions mis-selling costs is a sensible way to protect policyholders from immediate and severe cuts in their bonuses. However, as I have said, we will continue to monitor the way in which the costs of compensating the victims of pensions mis-selling are being met, and we will take any necessary action to protect policyholders' reasonable expectations.
The hon. Member for Grantham and Stamford (Mr. Davies) asked whether the costs should not instead fall upon the individuals who themselves sold the pensions, or who were managing the firms responsible for that mis-selling. It is important to stress that the sales managers and the sales force were often carrying out company policy. As my hon. Friend the Member for Hemsworth pointed out, in some cases those who were sent out to sell were placed in a quite impossible position, and it would be utterly wrong to expect the cost of compensation to fall on those individuals.
The responsibility for compliance goes right to the top of the company. The Financial Services Authority has the power to fine individuals within firms if any of them are found responsible for systematic malpractice, although that evidence is not always easily available.
I wish to refer to our pensions policy, which the hon. Member for Maldon and East Chelmsford made much of. The story in the Daily Mail to which he referred—as my right hon. Friend the Chancellor has made clear—has no foundation whatever. The pensions review and the stakeholder pensions proposals that we are developing are on track, and will be disclosed in the forthcoming Green Paper.
The abolition of the payment of tax credits to pension funds is part of a reform of the structure of company taxation which is in line with our determination to secure long-term growth in the economy and to remove the perverse incentive that payable tax credits gave to companies to distribute dividends rather than retain profits for investment.
I must end by stressing that phase 2 of the pensions review will go ahead. The Treasury and the regulators will continue to work with the industry to ensure good progress. I urge the industry to co-operate with us and the regulators, and to build on the progress that we have at long last made in the past 18 months.

Mr. Robert Ainsworth (Lord Commissioner to the Treasury): I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.

LIAISON COMMITTEE

Ordered,
That Mr. Eric Clarke be added to the Liaison Committee.—[Mr. Robert Ainsworth.]

Farming

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]

Mr. Lindsay Hoyle: Thank you, Mr. Deputy Speaker, for allowing me the opportunity to speak about the farming industry and to highlight the problems that face farmers in my constituency, who have had one of the most dismal years since the 1973 crisis.
The north-west is the second most affected area in Britain as regards the crisis in farming. Chorley has approximately 500 farmers. They are predominantly livestock farmers, although there is some arable in the lower areas of the constituency. They have all been hit hard by the bad summer and the turndown in stock prices. A ewe costs as little as £5 on Clitheroe market today, compared with £60, 10 years ago. In the past year, five of my farmers have sold up and one has had to get rid of his entire stock of pigs for next to nothing, losing thousands of pounds. Many more farmers are on the brink of bankruptcy.
The Tenant Farmers Association estimates that the average income of farmers has fallen by nearly 55 per cent. in the past year to just over £7,000. Most of my tenant farmers rent their land from North West Water or RJB Mining. Perhaps those companies could forgo six month's rent to allow the farmers to recover and give them a chance to keep farming, especially given some of the profits made by the utilities.
The situation is desperate in Chorley and throughout the country. Farmers in my constituency have pleaded with the Government for help. Without drastic action to solve the crisis, we will witness the decline and perhaps the extinction of a valuable industry and a great tradition in Britain.
I welcome the measures that the Government have taken so far to deal with the problems created by years of Conservative neglect. They have responded positively by providing agrimonetary compensation totalling £85 million in just two months and have so far retained the calf processing aid scheme to support the market for beef, which I hope will continue after November.
The Government have supported Britain's farmers in fighting for an end to the beef ban and have met the cost of enforcement of controls on specified risk materials from cattle and sheep in 1998–99. That support is worth £35 million and has helped livestock producers.
One of the best ways actively to repair the industry is to lend our support and back the "Buy British" campaign. It is vital that we not only restore the British public's confidence in British meat, but actively promote the sale of British produce. Today, the National Farmers Union launched its "Proud to Serve British" campaign, which was attended by my hon. Friend the Minister of Agriculture, Fisheries and Food. The campaign will target catering companies by encouraging them to buy British and to demonstrate that at retail outlets with the use of promotional material. I have one of the posters here.
One cannot underestimate the role that catering companies can play in supporting fanning. Families in Britain spend 26 per cent. of the annual food budget on eating out and turnover in catering outlets is rapidly on


the increase. In 1998, we spent £23 billion on catering and that figure is set to rise to at least £32 billion by the new millennium. However, only 50 per cent. of caterers buy their produce from a British source. We need to tackle that problem and to ensure that more caterers buy up to 100 per cent. from the United Kingdom. In the NFU's "Great British Food" survey of the general public, respondents said that they would like more British food to be served in local restaurants, cafes and pubs. Some 47 per cent. of the public state that their main reason for buying British is to support the rural economy, which the Government also support. We should build on that and make sure that everyone has the opportunity to purchase quality British produce.
I welcome the announcement by the Ministry of Defence that it is to serve British beef to the United Kingdom armed forces. That commitment will give a boost to the industry and help to restore confidence in beef among the British public. I hope that the MOD will soon follow suit with lamb. The lifting of the ban on beef on the bone next March will be another big step on the road to recovery.
We should now concentrate on schools, local education authorities, hospitals and other large establishments, which have a part to play in boosting the farming industry. We need a commitment from them that they will put beef back on the menu and make a concentrated effort to buy the British beef that we love.
We must put our full weight behind the campaign to back British produce. I hope that the people of the UK will show their support. We should actively encourage the public to purchase British produce by emphasising the high standards of our products.
I have already suggested to my hon. Friend the Minister that we should consider imposing stricter standards on imported meat and dairy produce. Often, inferior standard produce is imported and sold at a lower price. That must be stopped, by ensuring that meat and dairy produce adhere to high standards. The animal welfare standards observed in the UK should be applied to produce entering the UK market from abroad. For example, in the UK a qualified vet is required to be on hand at all slaughterhouses, but does the same rule apply in Greece and elsewhere—say, central America? What saving is made by not having to apply such strict standards in slaughterhouses there? If we applied equal controls, other countries would not be able to cut costs. We would be on an equal footing and furthermore, that would benefit animal welfare in other countries.
If a car is imported into the UK, we are careful to ensure that it meets all safety criteria to match our British standards. Why should meat and dairy produce be any different? I hope that the Minister will consider that.
I am disappointed by the way in which the supermarkets have acted during the crisis. It is about time that they acknowledged the vast problem. Instead of retaining the huge profits that they have been making, they should consider paying a fairer price for meat. Large supermarkets can afford to reduce their profits for the sake of a valuable industry, but instead they join together to maintain high retail prices. Soon they will no longer be able to offer the consumer a wide range of quality British products, as their greed will destroy the industry.
I welcome the fact that some supermarkets are beginning to see that. Sainsbury's, for example, now ensures that 90 per cent. of its produce is of British origin. Asda has removed New Zealand lamb from its shelves, in a move designed to boost Britain's struggling sheep farmers. I hope that Asda will pay a good price for the good quality lamb that it will sell.
In general, however, the supermarkets refuse to pay a fair price for meat and in some cases operate like a cartel, agreeing to keep prices high. Supermarkets may claim to be in competition when they sell products at rock-bottom prices, such as a tin of beans at 7p, but I do not see any savings being passed on to the consumer on beef, pork or lamb. I want a fair price for a quality product to be paid to farmers. That will protect farmers' livelihoods and allow the continuation of the farming industry and shoppers' choice.
Overall, I support the Government's efforts. They have acted swiftly to address the crisis in farming, and slowly but surely we are getting back on track. However, we need more support. I welcome the strong commitment to the UK farming industry and to the rural economy demonstrated in the intention to introduce market-oriented reform of the common agricultural policy.
I hope that we can get firmer backing for British produce to give the industry a boost; further agrimonetary compensation, especially for livestock farms; and more aid for farmers to help them in the short term and to ensure that this vital industry does not collapse.
I also welcome the support offered today by the Government to the "Proud to Serve British" campaign. The campaign is a drive to promote the quality and high standards of British farm products, and is an ideal way of restoring confidence and increasing agricultural sales. A similar campaign worked in the 1970s to counteract the worst farming crisis this century. I think that this is the way forward and will boost the industry again. I believe that farmers also have a part to play: when they need to buy a new tractor, they should also show a commitment to buying British.

Mr. David Heath: I thank the hon. Member for Chorley (Mr. Hoyle) for giving me the opportunity to contribute to this brief debate. I shall try to express some of the real desperation that is felt by many members of the farming community in the area of Somerset that I represent. One such farmer came up to me in Kingsbury Episcopi last Saturday, as the rains came down and the floodwaters came up, to tell me about the woes of many farms in his area. A farmer from Nunney approached me during my village tour to show me the slip from Frome market, which revealed that he had gained 18p net per calf. The pig farmers in Wanstrow and Truddoxhill tell me that they are losing many pounds on every weaner that they take to market.
It is unheard of in my experience and in that of many farmers to see every farming sector down at the same time, but that is the situation at present. It is often said that farmers are prone to crying wolf, but this time it is not a false alarm: our farmers are in desperate straits. That is backed up by the statistics. A recent survey in the south-west found that farm profits in the region are down by 79 per cent. on average. That compares with an average of 49 per cent. throughout the country. An even


more alarming study conducted by the university of Exeter revealed that the average net farming income for lowland livestock farmers in the south-west will be £100 this financial year—we are returning to the days of Thomas Hardy with that sort of figure.
I assure the Minister that I do not think that the crisis in agriculture began on 2 May last year. There has been an on-going problem with which some Ministers have struggled manfully. They have done some of the right things, but the farming community and I would like to see more action on behalf of the farmers. First, the Government must recognise that the crisis exists not just in the upland areas but for lowland farmers as well. There is much concentration, for obvious reasons, on the upland farms and the difficulties that rural communities in those areas face. The lowland livestock farms of Somerset and the levels are not great ranches, but small, often tenant farms. As the hon. Gentleman said, those farmers are really suffering at present.
Secondly, I believe that a basket of short-term measures could be applied at this stage. I hope that the new Minister of Agriculture will examine some of those options. As the hon. Gentleman said, those short-term measures include agrimonetary compensation, which could be applied to the lowland, as well as the upland farms. The retention of the calf scheme beyond November would be not only a good signal but a stimulus to the beef industry to believe that better times may be ahead. The rendering industry is absolutely destitute at present. There is no rendering industry, and that is causing enormous problems for many farmers.
We must ensure that there is fair competition. The hon. Gentleman was absolutely correct in his comments in that regard. I hope that current moves will be successful in ending the beef ban, and I congratulate those Ministers who conducted the negotiations. However, we must ensure that there is fair competition with imports and that we are competing on level ground in terms of animal welfare and the quality of food imports.
We need to get to grips with the supermarkets and the profits that they continue to make while farming in this country is going down the drain. We must ask whether those profits are acceptable. We also need to examine interest rates, which are having a disastrous effect on all manufacturing industry—and farming is no exception. Some of us would argue in favour of a particular route out of the impasse, but that problem must be addressed on a national basis.
We can also do better in marketing United Kingdom produce. The United Kingdom generates extremely good farm produce. As for the south-west and particularly Somerset, I believe that we have some of the most wholesome and high-quality produce when compared with the produce of anywhere else that anyone cares to name. Yet I do not believe that we are marketing our produce as effectively as we could either in this country or abroad. More emphasis needs to be put on marketing.
I hope that the Minister will not talk, as colleagues have done, about fundamental restructuring of the industry. Of course there are pressures on the industry and of course there will be fall-out from that. However, when we talk about restructuring and "increased efficiency", we may be talking about the loss of the traditional family farm and the forcing of many smaller and medium-sized enterprises into agri-business, into the large conglomerates that own

a great deal of land but employ very few people. We may be losing the high standard of animal welfare which is inherent in many good family farms, where people care about the animals that they are looking after, and encouraging the growth of mono-culture, which is something that most of would prefer not to see.
Let us not talk about restructuring and efficiency, save the efficiency that comes from having a vibrant agricultural industry that employs local people, looks after animals well and provides for the best produce that we can produce.
It was a great disappointment to us in Somerset when the former Minister of Agriculture, Fisheries and Food was not able to come to Somerset to the Royal Bath and West show. It was the first time for a very long time that Ministers had not been present at the show. That is something that I hope will be put right by the Ministry this year. I invite the Minister, his right hon. Friend the Minister of Agriculture, Fisheries and Food and any of his colleagues to come to Somerset to see for themselves the position in which we find our industry and perhaps learn from the experiences of so many of my constituents, who are finding life extremely difficult and are looking for help.

Mr. Lawrence Cunliffe: I shall briefly and rapidly congratulate my hon. Friend the Member for Chorley (Mr. Hoyle). He represents a constituency that hosts exclusively the Royal Lancashire show each year, which is famous and historical. He presented his case profoundly and sincerely, and offered an excellent defence of the interests of British farmers in the north-west and throughout the United Kingdom. It was commendable and I congratulate him on it.
I shall speak exclusively about the area that I represent. Perhaps one would not think that Leigh and Wigan have rural areas where there are pig farmers, who almost exclusively are running small businesses. They are facing unfair competition. I say from my experience in Europe— tomorrow I am having discussions in Paris with the Agricultural Committee of the Council of Europe—that British pig food is quality production. It is subject to quality control and high standards, including those of animal welfare. We have higher standards than any of our continental competitors.
I feel for our farmers. We are talking of losses of about £30 to £35 on every pig that is reared, fed and sold. Many farmers face the stark scenario of bankruptcy. I know that the Government have taken commendable initiatives on which we have congratulated them but we are faced with unfair competition that hurts British producers. That unfair competition takes the form of inferior quality products. If our farmers maintain their standards they will face, obviously, a decline in their income. They cannot understand why that should happen.
Butchers in my constituency are also concerned—this is the supermarket argument. Everybody knows that the price of British beef or imported beef is propped up by the artificial prices and margins of other goods in the supermarket. That needs investigation by Committees of the House.
I am astonished—I would not say that I was shocked—that no Conservative Members are present to discuss British farming interests. I cannot believe that they are so


indifferent to those interests after their party's tremendous failure at the general election. Their lack of commitment to farming is revealed by their absence this evening, and it is shameful.
I conclude with a topical phrase—buy British. I say to absent Conservative Members that that is the British way. At their party conference they tried to use farming to demonstrate to the country that they are back on the agenda.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Elliot Morley): I congratulate my hon. Friend the Member for Chorley (Mr. Hoyle) on the powerful and knowledgeable way in which he made his case. He spoke in great detail about the effects of the recession in agriculture on his local farmers. I listened carefully to his points and I shall respond to them in a moment.
I pay tribute also to the hon. Member for Somerton and Frome (Mr. Heath), who made a similar case about the effects in Somerset and my hon. Friend the Member for Leigh (Mr. Cunliffe), who made a good case about the pig industry. I am sympathetic to that case as I come from north Lincolnshire, which is a major pig-producing area.
I acknowledge that apart from the hon. Members whom I have already mentioned, the debate is attended by my hon. Friends the Members for Stroud (Mr. Drew), for Birmingham, Northfield (Mr. Burden), for Carlisle (Mr. Martlew) and for Wythenshawe and Sale, East (Mr. Goggins), but not a single Conservative Member. When the Liberal Democrats held a debate last Monday, Conservative attendance was also very poor. That demonstrates who has farmers' interests and those of the rural economy at heart.
I recognise that most sectors of farming, but particularly the livestock sector, are having a difficult time. The ministerial team has been listening carefully to representations by organisations such as the Tenant Farmers Association, which my hon. Friend the Member for Chorley mentioned, and many individual farmers throughout the country.
I am glad that my hon. Friend acknowledged what the Government have already done to alleviate the pressures on farming. Last winter, we provided an extra £85 million of support for the beef and sheep industries. We also absorbed £35 million of start-up charges for the cattle traceability scheme, which has helped the industry a great deal.
I listened to my hon. Friend's points about the calf processing aid scheme. My right hon. Friend the Minister of Agriculture, Fisheries and Food is considering that and other measures. That scheme is a two-edged sword and people in the industry have argued for its end. It must end at some point and although we concede that that will cause welfare problems, the scheme itself has caused such problems.
I agree that one of the most important actions that we can take to restore confidence to the livestock sector is to get the ban on British beef lifted. We are in the final stages of achieving that. A tremendous amount of work has been done by my right hon. Friend the Minister and

his predecessor, my right hon. Friend the Member for Copeland (Dr. Cunningham). That will probably be discussed at the next Agriculture Council in November. There is no doubt that lifting the ban will send the right signals to the industry.
It is worth mentioning that one of the reasons why the livestock sector is facing such difficulties is that it faces the on-costs of specified offal removal. We must have such regulations and the extra costs because of the catastrophe of BSE, which has hit not only the beef industry but the whole livestock sector. The previous Administration made some terrible mistakes in dealing with BSE, and we are still feeling the reverberations and repercussions.
My hon. Friend the Member for Chorley made some good points about what can be done to help the livestock sector. He mentioned the promotion of the high standards of British meat production. We accept his case and, indeed, recently held a catering seminar chaired by Lord Donoughue. Its aim was to encourage the catering industry, which is a major sector of the economy, to use more British products. We argue that case not simply because we are British, although I was moved by my hon. Friend's patriotism.
The fact that a product is British is not enough. We argue for the use of British products on the basis of quality and welfare and hygiene standards. As my hon. Friend rightly said, our products conform to the highest standards in the world, and that fact needs to be borne in mind in the interests of fair and open competition. I shall say a little more about that in a moment.
My hon. Friend the Member for Leigh mentioned the pig industry. I understand what he said as I represent an area that is one of the centres of the British pig industry. Our British pig producers have put a great deal of effort and a great many resources into raising welfare standards and ending the sow stall and tether systems. In addition, pigs in this country are not fed meat and bone meal, as they often are on the continent.
I must stress that the pig industry has not come to the Government asking for more subsidies—in fact, it is not subsidised. It has asked only for recognition of its high welfare and quality standards, and it is absolutely right to do so. I might have a little word of encouragement for the industry. Today, my right hon. Friend the Minister of Agriculture met the British Retail Consortium, which represents all the major retail supermarkets. It has agreed with my right hon. Friend that it will no longer stock pigmeat or bacon that comes from sow stall and tether systems or from pigs that are fed meat and bone meal. That is a tremendous step forward. As I said, this is not about being a little Englander but about fair competition.
Of course, some continental producers produce pigmeat to the same standards as we do. That is fine; that is what fair competition is about, but it is not unreasonable for the British Retail Consortium to recognise the particularly high standards that prevail in pig production in the UK. Of course, the customer also wants high standards. The consortium also discussed with the Ministry the fact that some imported meat is packed in the UK and then marketed as British meat. It has assured us that it is going to take action in that regard, and I congratulate it on that.
As my hon. Friend the Member for Chorley rightly said, the Ministry of Defence is sourcing 100 per cent. of its pigmeat, 50 per cent. of its bacon and—eventually—all of its beef from the UK. We shall of course use our influence on other Departments and on local government, not in an attempt to restrict trade but in order to get recognition of the high standards operated by the livestock sector.
We have been listening to suggestions from the industry and have listened to the points made this evening. We have also been considering the various options. Of course, there are cost implications involved in any

package, and any measures have to take their place among other Government priorities when it comes to the allocation of available resources. It is the kind of case that my hon. Friend the Member for Chorley has made this evening, and the way in which he has made it, that influences the Government. I assure him that he can tell his farmers tomorrow that we have listened carefully to what he and his colleagues have said. I assure him that what he has said tonight will influence what happens.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Ten o'clock.